What is a Fixed-Rate Energy Plan?

A fixed-rate plan is pretty much exactly what it sounds like - you lock in a rate for electricity or natural gas for a set period of time. Many energy companies offer plans for a wide range of contract term lengths, though the most common ones are 6 months, 12 months, and 24 months.

What is the benefit of a fixed-rate plan?

When comparing the rates across plans, you may find the rates are slightly higher or even lower than what is currently offered by the variable-rate plan (which has a rate that varies each billing cycle). But when you sign up with a fixed-rate energy plan, you don't carry the risk of prices that could skyrocket when the seasons change. At the same time, you risk missing out on lower prices from a downturn in the energy market.

What protection does a fixed-rate plan provide?

You can understand the fluctuations in the energy markets by comparing it to buying gas for your car. When it's time to fill the tank, you're probably on the lookout for the best deal at the pump. As you know, fuel prices can change from day to day, neighborhood to neighborhood. So budgeting for gas costs can be, at best, a guess.

The same is true with natural gas and electricity. Natural gas as a commodity is traded on the market, which means it experiences regular price fluctuations based upon consumer demand. To see how natural gas prices have risen and fallen over the years, visit the U.S. Energy Information Administration website.

Electricity prices can also fluctuate, depending on a variety of factors, such as fuel costs to generate electricity, weather, the distribution system and demand.

Much like the fluctuating cost of a gallon of gas for your car, these shifting rates can leave you feeling uncertain as to how much you're going to have to spend on energy costs. And when you add seasonal elements into the mix, such as a colder-than-normal winter with peaking natural gas prices, your unease can grow and you may end up paying higher prices than you'd expected or can afford.

When you choose a fixed-rate energy plan, you are hedging against the day-to-day swings of the energy market so you can better manage your energy costs and bills with peace of mind.

Is a fixed-rate energy plan right for you?

If you are thinking about a fixed-rate plan, here are a few things to consider:

• If you live in a part of the country with lots of seasonal weather variation, a fixed rate can help you make a reasonable projection on how much you are going to spend.
• If you are living on a fixed income and a big jump in energy prices would make running your air conditioner unaffordable, a fixed-rate energy plan might offer the price protection you need to stay cool when it's hot outside.
• If you live in a more temperate part of the country and your energy usage is roughly the same month-to-month, a fixed-rate plan would bring even more predictability to your budget, while sheltering you from fluctuating prices.

Interested in looking at a fixed-rate plan? See how much you could save with Direct Energy in your state.