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How do energy discounts work? What you need to know
Increased competition in the energy sector means some retailers are offering generous introductory rates to attract new customers. Taking advantage of these discounts can be a great incentive to jump from one provider to another. But how does the average person make sense of all the deals and discounts to find a package that will suit them in the long term?
Pay on time discounts – are they worth it?
Pay on time discounts are the most common discounts offered by energy providers. They can be quite sizeable, providing reductions of up to 30% off bills. They exist partly because providers aren’t allowed to penalise people for paying their bills late, so companies have done the opposite, providing an incentive to encourage people to pay on time.
“Don’t sign up to them if you’re someone who always pays your bills late,” says Rachel Zimmerman, iSelect Energy Marketing Specialist “And people need to be honest about their own past life admin habits.”
If you want to catch the pay on time discount, it could be worth setting yourself reminders, or using a tool like an automatic direct debit, so you don’t miss that deadline.
Is the discount off the total bill or just usage?
All discounts are calculated differently, so it’s worth reading the fine print. “Some providers will offer you a flat discount across your entire bill, whereas others will just apply the discount to the usage portion of the bill,” Rachel says. “Now, that’s important, because for a lot of people, quite a big part of their bill is actually not usage – it’s things like network charges and connections, among other things.”
A provider might be talking about a 30% discount, for example, which sounds great; but if the discount is only across usage, this might cancel out some of the benefit. Another provider might be offering a more modest 15% discount, but if it’s applied to the entire bill, this might turn out to be the better offer.
Discounts generally stop after a certain period of time. After the initial period is up, which might be 12 months or two years, you’ll notice that the discount is no longer applied, and your bills will increase.
“Obviously at that point, the sensible thing to do would be to shop around and see if you can get a better deal,” Rachel says. “Otherwise the provider will just roll you over to a new plan without the original discount.”
What about bundling?
Some customers assume they’ll save money by bundling their gas and electricity services together on a plan with the one provider. This is not usually the case.
“Generally, with a bundled product, the benefit is convenience,” Rachel says. “The convenience being that you’re only dealing with one company, you’ve got one account number – though you will usually still get two separate bills for your gas and for your electricity, because of the different billing cycles.”
This is why it can sometimes prove more beneficial to split your gas and electricity between two providers. If you’re going to have to pay two separate bills anyway, you might as well investigate deals with these services separately.
Energy providers don’t generally lock you into a contract anymore, so there are no cancellation fees, which makes it much easier to switch energy providers than it used to be. The driver for this was customer demand rather than legislative initiative; as more customers started shopping around, the industry saw that no-fixed-term products were usually more popular.
“Even if there are cancellation fees on energy services, they’re often pretty low, so it may still be worth breaking your contract if you’re going to get a better deal in the long run,” Rachel says.
Cash back and other discounts
Take a long-term approach to picking up introductory cash back or credit offers – for example, a $100 credit on your first bill. These can be great value, but they need to be weighed against the duration of your relationship with the company over time.
“This should never be the sole reason why you choose a provider, because there’s no point getting lured in by $100 credit when long term you’re going to be paying a lot more, which will very quickly add up to more than $100. But if you are comparing two providers that are offering similar value overall, extra cash might get you over the line.”
Other discounts can include small percentages off your bill for opting to go with direct debit, or paperless bills and online account management. Remember that some states have pensioner and concession card holder discounts, and it’s also worth investigating loyalty programs.
It’s not all about the money
One last thing to remember is there are non-financial reasons you might choose a certain provider. These include ease of managing your account and flexibility. For example, some providers will allow you to pay more regularly, in smaller installments. This can help you avoid bill shock, especially in peak times like winter.
Similarly, bill smoothing can also help you deal with uneven bills through the year. This is where your provider gives you even installments to pay each month, which affords you some predictability and the ability to manage your finances over the year.
It’s always important to assess the benefits of an energy discount offer over the long term. Consider how the discount works, and whether you’re able to fulfil any conditions required to access the discount.
*We don’t compare all energy providers or plans in the market. The availability of plans will change from time to time. Not all plans available from our providers are compared by iSelect and due to commercial arrangements or availability, not all products compared by iSelect will be available to all customers. Some plans are available only from our call centre and others are available only from our website. Energy plans are available only for properties located in eligible areas of Victoria, New South Wales, South East Queensland, South Australia and ACT. Click here to view our range of providers.