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Energy costs account for a large percentage of a household’s monthly bills

Comparing Energy Prices

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Energy costs account for a large percentage of a household’s monthly bills, along with other regular payments such as home improvement loans. This always seems an inevitable cost that just keeps on rising, without any prospect of price cuts. However, there are ways of reducing your bills without having to limit the amount you use. Many consumers feel that there is no point in switching suppliers, but if you compare the different providers and look outside of the big six you could get a better deal.

The Problem with Energy Suppliers

Energy companies tend to be disliked by most consumers, who feel that there is nothing they can do about the situation. Every winter we seem to go through the same process where one energy supplier starts the round of price rises and the other major providers simply follow them. This constant process of price increases can hit many households hard, especially during the colder months. It can put some even further into debt and mean they have to look at alternative measures, such as debt consolidation loans.

Why Do They Put Up Prices?

When it comes to increasing the cost to customers, energy providers always cite an increase in the wholesale price. This is one of the main components when it comes to calculating our bills and, as such, has a big impact if it goes up. On average, the wholesale cost accounts for 45% of our annual bill. Other factors that make up the final figure include network and operating costs and the amount suppliers need to spend on environmental and social factors.

As they buy their energy in advance, it’s not always as easy for them to pass savings on to customers when prices fall. They have to estimate the amount they will need during a specific period and buy at the right price.

Energy suppliers might blame wholesale increases, but research by Ofgem suggests that the cost to the customer is often increased more than is actually necessary. In 2011, there was over a 25% difference in the amount suppliers charged customers for electricity and the total they actually paid. There was also a 15% difference for gas prices. Even during these tough economic times, the larger suppliers are still making huge profits. For 2011, British Gas posted profits of £742 million and Scottish Power recorded £1.2 billion.

Avoid High Energy Prices

The majority of consumers tend to stay with one of the main six providers. This is often because they don’t get round to switching suppliers or they just believe these provide the best price and service. However, smaller companies, including First Utility, Spark, Co-operative Energy and Ovo Energy, are now offering some good deals.

As they are smaller, they can reduce their prices quicker if the wholesale costs fall, whereas the larger providers have a longer process to go through before bills drop. They also have fewer tariffs, making it easier for customers to see the exact price they’ll pay rather than being drawn in by special deals. They tend to target niche areas which are often overlooked by the larger suppliers, such as renewable energy and low-income customers.

Compare and Switch

Customers often think that the process of comparing and switching energy suppliers will be long and complex. However, by using a comparison site you can quickly find the right deal for you. When you’re looking for a new tariff, it’s important to look at the areas that will affect the cost.

Choosing to manage your account online and paying by direct debit will lower the cost. Figures from uSwitch show that on average you can save over £200 by doing so. Factor in any exit charges from your current supplier and see exactly what you’re paying at the moment. Think about whether you want a fixed or variable deal. Fixed will enable you to budget more effectively, whereas a variable plan could go up or down depending on the wholesale price.

You don’t have to put up with high energy prices. Look around for the best deals, and you could have more money to spend on other areas.

Warning: Late payment can cause you serious money problems. For help, go to moneyhelper.org.uk
Representative 28.96% APRC (Variable) - For a typical loan of £20,950 over 85 months with a variable interest rate of 23.00% per annum, your monthly repayments would be £537.44. Including a Product Fee of £2,095.00 (10% of the loan amount) and a Lending Fee of £714.00, the total amount repayable is £45,682.15. Annual Interest Rates ranging from 11.7% to 46.5% (variable). Maximum 50.00% APRC. The loan must be paid back by your 70th birthday. Read more.

Think carefully before securing debts against your home your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it. If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
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