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Could switching from prepayment to Direct Debit reduce your energy bills?

Posted 27 June 2016

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With research reporting fewer competitive tariff choices for prepayment customers – can making the switch to Direct Debit cut your energy costs?

Using electricity and gas is part of everyday life. Sometimes, reducing your energy usage is just not realistic – but that doesn’t mean you can’t cut your energy costs. 

According to the Competition and Markets Authority (CMA), the cheapest tariffs available on prepayment meters are, in most cases, still significantly higher than those for customers on standard meters. So if you’re currently on a prepayment meter, switching to paying monthly by Direct Debit is worth considering. 

What is a prepayment meter?

With a prepayment meter, you pay for your gas and electricity before you use it, whereas with a standard meters, you pay for your energy only after you’ve used it. Prepayment meters are topped up with credit, usually by a key or card. You can do this at some Post Offices, newsagents and shops. With the introduction of the smart prepayment meter, you can also top up online, by text or by a smartphone app depending on the supplier. 

The main reason why you would have a prepayment meter installed in your property is if you’ve struggled to keep up-to-date with your energy payments and have outstanding debt with your supplier. Energy providers prefer this option if you owe money, as the credit used to top up the meter goes towards any arrears as well as paying for your current energy. This way, you’ll gradually pay off any debt you owe.

If you’re renting, you may find that your property has this type of meter when you move in. Some landlords prefer to have a prepayment meter instead of a standard meter to ensure that tenants don’t leave the property before they’ve paid what they owe for their energy. However this is usually not the cheapest option for you as the tenant.

Consider your options

Citizens Advice says that customers using prepayment meters pay an average of £226 more per year than customers on Direct Debit tariffs. So while paying for your energy on a pay-as-you-go lets you track what you’re spending and avoid unexpected large bills, when you compare it to Direct Debit tariffs, you usually end up paying more. 

So what are your options when it comes to cutting down on the cost of energy? Whether you have poor credit history or you’re a tenant, there are options you can consider to cut down your energy costs. 

Making the switch 

The good news is you may be able to switch to a standard meter. To do this, your supplier will need you to meet certain requirements. You need to make sure that any outstanding debt is paid off and depending on the supplier, they may run a credit check on you. If your supplier has only recently switched you to a prepayment meter because you’ve had problems paying your energy bills, it’s likely that they won’t let you switch back just yet.

You may have to pay a fee for the installation of a new meter. However, each supplier will have their own rules on this so check with yours to see if they’ll charge you. It’s worth comparing suppliers to see if any of them will let you switch meters free of charge. Keep in mind in mind that while some energy providers may charge a fee, you may save money on you energy bills overall with a cheaper tariff, so work out which is the best option for you over the long term.

If you’re currently renting a property, it’s worth considering switching your prepayment meter to a standard one. To do this, you’ll need to get permission from your landlord first – you can’t just install a new meter. But if your landlord has deliberately chosen to have a prepayment meter to protect against tenants leaving them with unpaid energy bills, it’s unlikely they’ll be willing to let you switch to a standard meter.

Find a cheaper prepay tariff

If your credit history or landlord is preventing you from switching to a standard meter, there are still ways to save on your energy bills and get the most out of your money. One way is to shop around and compare prepayment suppliers to get the best deal. 

With Ofgem reporting that prepayment meter customers could save an average of £66 by transferring to an alternative prepayment supplier, it’s definitely worth looking into. Ofgem-accredited comparison sites such uSwitch and MoneySuperMarket can help you compare tariffs to find the cheapest and most suitable option for your household. 

Remember you can find out more on how to manage your money better and reduce energy costs by visiting the free and impartial Money Advice Service.

If your energy bills are becoming unmanageable or you’re struggling with any other financial commitments – why not get in touch with one of our advisors today using the options on the left? They can talk you through the most suitable options for your situation.

by Christine Walsh

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.