When it comes to whether you should go with a fixed or variable rate for your electricity, you may find yourself scratching your head and going “Huh?” And you are not alone. Whether applying to financing, loans or electric bills, the great fixed versus variable debate is complex—especially when it comes to affordable energy.
Before we go any further, let’s break down these two terms as they relate to energy for your own edification:
- Fixed Rate: This kind of rate is designed for customers who prefer price certainty. A fixed rate locks in your price per kilowatt hour for a specified period of time, meaning your bill will remain constant despite fluctuations in the market. Fixed rates typically last six months to 12 months but can also last as long as 24 and as few as three.
- Variable Rate: A variable rate means your rate will change according to the price of energy. This type of rate is attractive for those customers who do not want to be locked into a specific price point and want to be able to take advantage of positive fluctuations in the market.
Why Fixed Makes Sense Now
At the end of the day energy is a commodity, meaning it is bought and sold on the open market, just like the stock market. As such, when demand for energy is low, the price goes down. But when the demand is high—as we saw this winter—the price goes up.
As we come off of an especially oppressive winter, and a season that caused the energy market to become extremely volatile, you may be entertaining the great fixed/variable debate yet again. And as we head into the summer months—which are critical peak months for the energy market—let’s take a look at why fixed makes sense:
- It offers price certainty. Once you lock in your rate you can rest comfortably that your electric bills will be what you expect for the term period, no matter if the market enters a period of flux. (And with scientists being 75 percent certain that 2014 will be the hottest summer on record, you may take comfort in this price stability).
- You can budget accordingly. By understanding what your energy bill will be each month, you put yourself in a prime position to budget better for the summer. Say “hello” to beach trips (carpool please!), concerts and BBQ cookouts.
- You don’t have to worry about what summer will bring. Following what was referred to as the “Winter of the Century” in the northeast, with the coldest January on record in the region, it follows that summer could be especially brutal as well. But with your locked in rate you can fret no more about your monthly A/C bill.
At the end of the day, choosing whether to go fixed or variable when it comes to your affordable energy is a decision that has to make sense to you and your budget. So what will it be?