Although routinely switching energy suppliers can be a great way to save on your energy bills, there is a barrier that can often offset any potential savings: exit fees.
If you’re currently on a fixed deal, you may be charged fees by your current supplier if you decide to switch away from them before the end date of your deal.
What are exit fees?
An exit fee is a charge an energy supplier applies if you leave your contract early. Most energy customers are on fixed energy plans which commit you to a pre-determined amount of time with that supplier, usually 12 or 24 months.
Previously, these fees were anywhere between £5 - £30 per fuel source, but due to the marked increase in wholesale energy prices, they can be much higher. So, if you have a dual fuel contract, meaning your gas and electricity is with the same supplier, you could be charged a substantial amount for leaving your plan early.
How are tariff end dates worked out?
There are two types of fixed energy deals available: those that end on a specific date, and those that start only once the switch to your new supplier has completed.
Tariffs that end on a specific date
Sometimes, an energy supplier will offer a fixed deal that ends on a specific date. For those who signup at the beginning of that tariff’s start date, they will yield the benefits of that tariff for its full duration.
However, some customers may sign-up to this deal after the start date has passed, meaning they will only stay on that tariff for however many months remain.
Tariffs that start once you've switched
These types of fixed tariffs will only start once the switch to your new supplier is complete. For example, if you apply to switch to a new 12-month fixed deal with a new supplier on 1 June and the switch takes three weeks to complete, the 12 months of your tariff period will not begin until 22 June.
Why am I being charged an exit fee for leaving my tariff early?
When you take out a fixed energy deal with a supplier, that supplier is essentially promising to keep their price the same for the time your deal is in place (usually 12 or 24 months).
Suppliers employ the strategy of hedging – meaning suppliers pre-purchase energy months in advance to mitigate risks presented by price volatility in the market, with purchases made throughout the year in response to demand. This means that the energy you use this month, would likely not have been purchased this month by your supplier.
While on a fixed deal, the energy you use was bought in advance by the supplier on the understanding that during the period your deal is valid, the wholesale price of energy may fall or increase. This risk for suppliers is balanced out by them presuming you will stay with them for the duration of the fixed term deal. But if you decide to leave your deal early, the supplier now has to sell back the energy you haven’t used, for which they may be out of pocket.
When can I switch without incurring a fee?
When signing-up with a new energy supplier, you’ll usually do so on a fixed term deal. These deals are used by energy suppliers to incentivise new customers to sign-up.
Once this fixed rate deal expires, you will be moved onto their standard variable tariff. Being on a standard variable tariff – while generally much more expensive than a fixed rate tariff – means you can switch suppliers without incurring any early exit fees. This is fine if you’re happy to switch only once your fixed energy deal comes to an end, but what if you’ve found a great energy deal elsewhere and want to switch sooner?
You can switch to a new energy supplier within 49 days of your current deal expiring and you won’t be charged any exit fees. Energy regulator Ofgem has confirmed that exit fees do not apply to any switches occurring within this timeframe, giving you peace of mind about switching a little early.
If you’re not sure whether you’re on a fixed or standard variable tariff, the best thing to do is check your latest bill. If your bill shows a contract end date, it means you’re on a fixed tariff.
How should I time my switch to avoid exit fees?
If you find a new energy tariff that is cheaper than both your current fix and your supplier's standard variable tariff (SVT), it may benefit to switch as early as possible within the 49-days prior to your existing tariff ending.
If the new tariff you’ve found is cheaper than the SVT but not cheaper than your current deal, although it is still worth switching, it is best to do so towards the end of the 49-day window. Bear in mind that switches can take up to three weeks to complete, so make sure not to leave it so late that you end up falling onto your supplier’s SVT.
Are there any suppliers who don’t charge exit fees?
Currently, all energy suppliers in the UK charge exit fees.
What if I’m mid-contract but still want to switch?
Because exit fees on fixed energy tariffs have increased due in part to ongoing volatility in the market, any financial benefit you may gain by switching to a cheaper energy deal could be cancelled out depending on the amount in exit fees you need to pay. It would only be beneficial to switch early if the savings you stand to make on the new tariff are significantly more than the exit fees themselves.
For example, are the unit rates and standing charges offered on the tariff low enough that you would not only save more than what you’re currently paying per month, but that the savings offered would be low enough to also cancel out the exit fees you would incur for switching early?
If what you stand to save doesn’t meet these requirements, it’s best to wait until you’re within the final 49 days of your contract before switching.
What does Ofgem say about exit fees?
Energy regulator Ofgem states that suppliers must adhere to energy licence conditions, under which exit fees must be ‘proportionate’ and ‘must not exceed direct economic loss’ to the losing supplier.
Although this means that energy suppliers are free to charge exit fees to customers wishing to switch early, Ofgem have made clear that customers wishing to switch suppliers within 49 days of their fixed-term contract ending are free to do so with no exit fees being applied.
Ban on Acquisition-Only Tariffs (BAT)
Until recently, customers could not move to a fixed-rate tariff with the same supplier once their existing deal ended. Instead, they would be transferred to a standard variable tariff. Standard variable tariffs are among some of the most expensive plans available, leaving customers paying much higher prices for their energy.
However, in April 2022 and in response to increasingly high and volatile energy prices, Ofgem introduced the Ban on Acquisition-Only Tariffs (BAT). Under the BAT, suppliers cannot poach new customers by offering cheaper, fixed-rate tariffs that are not already available to their existing customer base.
The BAT was initially a temporary solution to help protect customers during the energy crisis and was due to end in March 2023. However, on 3 February 2023, Ofgem announced it would extend the BAT for at least another 12 months, with the next review due in March 2024.
Want to avoid thinking about exit fees?
With Switchcraft, we won’t switch you while you’re mid-contract. Our automated technology will only switch you when it’s safe to do so, giving you peace of mind about exit fees.
If you’re ready to avoid exit fees altogether, sign-up with Switchcraft today and let us find you a great fixed deal.
Compare gas and electricity deals
We monitor the market and automatically switch you to better deals for free.