Martin Lewis: Fed up with unfair energy direct debits? Switch to variable direct debits instead
With many complaining about unfair energy direct debit hikes, we take a look at variable direct debits, and MoneySavingExpert.com founder Martin Lewis shows you when it's worth considering them.
The most common type of direct debit is 'fixed' monthly direct debit, yet there is another option known as 'variable' monthly direct debit, available from British & Scottish Gas, Bulb, EDF and So Energy. It's not currently available from Ovo and SSE (we're checking with other firms, and we'll update this news story when we know more).
The rates on both types of direct debit are the same, so in the long-run there is no cost difference – the real impact is on your cash flow (what you have coming in and out each month).
- 'Fixed' monthly direct debits spread costs over the year: Your supplier estimates how much you'll use over the next 12 months, and splits the payments equally with the idea of making budgeting easier. The amount can change if your usage goes up or down significantly, or if gas and electricity rates change. Most people pay this way.
- 'Variable' monthly direct debits change depending on what you use: To do this you must either a) have a working smart meter or b) give meter readings every month. What you pay will then depend on what you use each month. Expect much higher bills in the winter and lower in the summer – so this can be a cash-flow hit. You generally get a bill a few weeks before your payment is due to go out, letting you know how much your provider will take that month.
Martin: Who should be switching to variable direct debit?
While it causes many frustrations, if the standard monthly fixed direct debit didn't exist, it's the type of thing I'd be calling for energy firms to introduce. Smoothing out your costs over a year is a big boon for budgeting and done right should make life easier. So if it isn't an issue for you, stick with it.
The problem comes when you feel the estimated direct debit is wrong – and usually the real frustration comes when it is too high, especially if you've built up lots of credit.
The first thing I'd try and do is see if you can fix that. Make sure you're on a smart meter or giving regular meter readings. If you are, then use our Is your direct debit fair? calculator to see whether actually the direct debit is justified and just feels high because of the price hikes. If it isn't fair, speak to them to try and get them to lower it.
If none of that works, then variable direct debit becomes a decent option, but you have to be prepared to shell out more in the winter, and see big swings in what you pay.
"I'm much happier paying for what I actually use"
While it may not be right for everyone, some do prefer paying their supplier only for what they use, and we've even seen people successfully getting their credit back by moving to variable direct debits – like Maria, who emailed:
Thanks to your website regarding a variable direct debit, I phoned up Scottish Power and with no hassle I reclaimed over £300 of credit which will be in my bank account in the next few days. I'm much happier paying for what I actually use and feel more in control of my finances. Many thanks for great information.
Variable direct debit is far cheaper than 'payment on receipt of a bill'
There are similar payment methods, known as paying on receipt of a bill or paying on demand, where you get a bill each month based on what you've used. But here you'd pay by cash (a manual card payment or via the post office, for example) as and when you get the bill, rather than by direct debit.
Yet this payment option costs substantially more: on average the price cap for paying this way is about 8% higher than direct debit (which is the cheapest way to pay), rising to 10% higher from January 2023. This means, if a typical household is currently paying £2,500/year on direct debit, they'd pay £2,715 after receiving a bill.