The energy price cap is set to rise in January to £4,279 per year for a typical household, from its current level of £3,549 per year. While this makes no difference to families who pay for their gas and electricity via direct debit, customers who pay when they receive their bill will find their annual costs going up by an additional one percent in the North East.
This brings the extra cost incurred by choosing to pay for energy by cash or card when the bill comes up to 10 percent or £250 a year more than the average direct debit user.
That’s more than £20 a month and £165 more per year than those who use prepayment meters, traditionally considered to be one of the most expensive ways to pay for energy.
The Money Saving Expert website states direct debit is six percent cheaper than any other way of paying.
For maximum savings, the website stated Britons should combine this with various forms of action.
The website explained: “Meter readings. Give your supplier regular meter readings and it’ll give you a more accurate bill. If you don’t, you may find you’re paying for high estimates.
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“Smart meters. These send meter readings to your supplier automatically, so you should get an accurate bill. Some older models lose this ability after you switch supplier though, so you may need to start doing it manually again.”
For those using heating oil to heat their home, instead of gas or electricity, it’s different.
Many energy providers offer small discounts if they pay by direct debit.
which you could lose if you cancel and pay by credit or debit card when your bill comes in.
Paying by direct debit won’t get people a discount. But it can be convenient as it allows people to spread the costs.
The energy price cap has been temporarily replaced by the Government’s Energy Price Guarantee (EPG) until April 2024.
Until April 2023, the EPG freezes unit rates for gas and electricity at an average 34p per kWh for electricity and 10.3p per kWh for gas, making typical annual energy bills £2,500.
From then, the EPG will rise to make typical energy payments £3,000 per year, until April 2024.
What people pay under the energy price guarantee depends on how much they use, which region they’re in and how they pay for their energy.
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The most common type of direct debit is ‘fixed’ monthly direct debit, but there is another option known as ‘variable’ monthly direct debit, available from some energy suppliers.
The rates on both types of direct debit are the same, so individuals will benefit from savings by paying either way instead of when they receive a bill.
‘Fixed’ monthly direct debits spread costs over the year
A supplier estimates how much a person uses over the next 12 months, and splits the payments equally so the individual pays the same every month, regardless of how much they use, as long as they stay within the estimate.
The amount can change if one’s usage goes up or down significantly, or if gas and electricity rates change.
Most people pay this way as they prefer to pay the same amount every month and smooth out the peaks and troughs of winter and summer bills.
‘Variable’ monthly direct debits change depending on what a person uses
If individuals prefer to only pay for what they use and and are prepared for seasonal variance, they might prefer to pay this way.
To do this, people must either a) have a working smart meter or b) give meter readings every month.
Once a supplier has the readings from a person’s meter, they will get a bill a few weeks before their payment is due to go out, letting them know how much the provider will take that month.
If people find themselves in debt, they are encouraged to talk to their supplier as soon as they can.
If they just ignore the debt, their supplier could contact them about the possibility of installing prepayment meters.
According to the regulator, suppliers must work with customers to agree a payment plan they can afford.