When shopping around for a retail electricity provider, you’ll notice that many offer both fixed-rate and variable-rate plans. There are benefits to both, but it is very important to know the difference to ensure that your plan is beneficial to you and your electricity needs.

Fixed-Rate Plans

Fixed-rate plans allow you to lock in one low rate for the duration of your contract. The most common contract lengths last for 3-, 6-, 12-, and 24-month terms, although some providers offer terms for up to 36-months.

Benefits:

  • Price Protection for the duration of the contract
  • No need to constantly monitor and compare rates
  • Helps to budget for the amount on your next bill
  • A choice between contract lengths – Shorter contract lengths will protect you if market prices fall, and longer lengths will protect you if market prices rise. The choice is yours.

Downsides:

  • Early termination fees if the contract is cancelled prior to its expiration
  • If market prices fall, you may be stuck paying rates that are higher than market prices

Variable-Rate Plans

Variable-rate plans are tied to the market price of electricity. Variable rates are almost guaranteed to change monthly and may even change daily. Generally, you will not be locked into a contract and may switch providers at any time.

Benefits:

  • Month-to-month contracts that allow you to switch providers any given month
  • No termination fee or penalty
  • Initially, rates may be lower than the provider’s fixed rate plan

Downsides:

  • Rates can increase at any time, without notice
  • You’ll need to monitor the rates you are being charged each month and compare with other providers to ensure you’re paying a low rate

Which to Choose?

Ultimately, the choice is yours and should be based on your level of comfort. If you are considering a variable rate because lower prices are being advertised, ask yourself these questions:

  1. Will you constantly monitor and compare your rates with other retail electricity providers?
  2. Do you understand the electricity market and enjoy analyzing it daily?
  3. Would you be comfortable with your rate increasing by more than 3 cents/kWh without notice?
  4. Do you think electricity prices will decrease over the next year or two? .

If you’ve answered ‘yes’ to these questions, then choose a variable rate. For most, however, we recommend choosing a fixed-rate plan with a term of 6- to 24-months.

Keep in mind, if you are under a fixed-rate plan, you will most like be switched to a variable-rate plan when your contract expires. Shop around to avoid high costs.