Electric pay as you go vs direct debit

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Hi all! DW and I are just about to move into a new flat. It's set up on gas/electric pay as you go top up cards which is fine but we can switch to direct debit if we want.

Which would work out cheaper in the long run?

Direct Debit is always cheaper than pay as you go.

DD would be cheaper but some prefer pre paid as they can see what they are using and so have more control over it

We have prepayment and its much cheaper than it would be on DD. Before the recent price rises we would spend £60-80 a month on electric, and roll some over to next month, on a 4 bed house. Not sure what it is now as we topped up the maximum before the price rises so still using that credit. With DD the energy companies always seem to increase it to make sure you overpay.

I am prepaid and think it is cheaper than being on direct debit

Completely agree. Most people are shocked when I tell them how much we spend.

Martin Lewis comments
”But if you're thinking of ditching your direct debit, I do need to make you aware of something. While you may gain control, it will cost you more.

"Now, the numbers I'm about to give you are for someone on typical usage. Of course, if you use more or if you use less, it changes in rough proportion, but I thought it would help you to just get an idea of the difference.

"If you're on typical usage, the price cap from 1 April – for somebody paying by direct debit – is £1,971 a year. If you pay by prepayment, it's £2,017 a year, but of course you'd need a prepayment meter for that. If you want to pay by quarterly bills, and that's what most people ditching direct debit tell me they're thinking of doing, then the price cap is £2,100. So that means you're paying over 6% more for the same usage than you do by direct debit, because there is a discount allowed for direct debit.

"So while you might have more control in the short term, over the longer period, ditching monthly direct debit means you will pay more for your energy, about 6% more, taking that increase from 54% to well over 60%. I can't tell you what to do, but if you can cope with the direct debit, it is cheaper to do so."
www.moneysavingexpert.com/news/2022/03/energy-price-hike-direct-debit/

Prepayment is literally price per unit more expensive than any other way of paying for energy. However, it does give complete control because you can only use what you have.

A halfway step would be cash payment on a credit meter, you still only pay for what you use but the unit rates are cheaper than prepayment.

Direct debit is the cheapest way to pay but that's because the energy company retains 100% control over how much you pay, therefore their risk exposure is smallest. They may tweak the amount for you, but ultimately their computer systems will drag you back to where they think the payments should be.

It really isn't. The only way it can be cheaper would be by using less. The unit price and standing charge is higher than what it would cost on DD.

Yep, the unit prices are higher but energy companies keep whacking on extra so your always in credit, and pay more each month. Our neighbours are in a 3 bed and pay double what we do by DD. I work from home 5 days a week with 2 computers, DW is home all day and ds lives on his playstation after school. We would be paying loads more if we were on DD.

Honestly make the swap ASAP.

Pay meters cost more.

But you build a credit so its not lost money... in the winter, your bills will go up, theirs wont. Thats how a DD works.

www.citizensadvice.org.uk/consumer/energy/energy-supply/your-energy-meter/decide-if-a-prepayment-meter-is-right-for-you/

In addition to the fact that credit isn’t lost but applied to actual bills later, ie winter, you should not be comparing what you pay vs what a neighbour pays because homes energy efficiency varies as does the usage of the people living in them. The point is for your usage you are paying higher standing charges and higher price per KWh for your usage than you would if on DD because companies charge higher rates to their prepayment customers and have a higher cap as well.

I’m on pre pay meters and I like the control element. If it starts running out too quickly (which it hasn’t yet) I can tweak my usage to get it down a bit. I too am not paying anywhere near what people I know on DD’s are paying. Even in winter my bills won’t be higher than theirs. When we had that cold snap just after the price rises I was using my heating for several hours a day while other people were freezing and layering up.

I know what the facts/calculations say, but it just isn’t my experience.

@Fuwari
Its not your experience because you are comparing an Apple to an Orange. You can’t compare what you pay in total vs what someone else pays in total because the amount of energy you use will never match the amount of energy someone else uses. It’s like claiming that going to a petrol station that charges £2.05 per litre is cheaper than the petrol station your neighbour uses at £1.90 per litre because they always spend more than you everytime they fill up their car. But lo and behold, they have an SUV and you have a Ford Escort.

Great explanation @Discovereads

This thread is so frustrating and it would be interesting to have the same conversation next January when the DD people are still paying the same as they are now and the prepay people are either seeing their top ups run out much faster and are needing to put 2/3/4 times more into their account or they're in a cold dark house because their budget doesn't stretch to the amount it costs to keep the heat and light on in winter and they haven't got ahead by paying more during low usage summer months.

The daily standing charge and unit cost on prepay is higher than it is on direct debit. Fact. The only way you'd pay less, would be to use less overall. Which might be how some people choose or have to deal with it. But it doesn't follow that it's cheaper on prepay than DD for the same amount of energy, because it simply isn't. It's not right, but that's the way it is.

The daily standing charge and unit cost on prepay is higher than it is on direct debit. Fact. The only way you'd pay less, would be to use less overall.

@BarbaraofSeville

Yes, and the people on prepayment commenting that they pay less than neighbours on DD have to be using a lot less energy than their neighbours and are not realising that their bills would be even lower if they switched to DD.

how do prepayment meters work? I’ve always assume you were putting credit onto the meter and then electricity would be used up at its current cost at the time of useage, the way you’ve described it it’s sounds like you are paying for the electricity in advance and then using it, so you got it cheaper by topping up before price increase. Which is it?

My energy company doesn't charge me the daily charge because we're on DD. They have a DD tariff and a pay on receipt of bill tariff. Never had pre payment but my parents have and I know their daily charge and p/kw is higher than the norm.

It's 100% not.

It's usually charged at the current cost. When the last price increase came in, Martin Lewis asked the energy companies about this and, while some said it would be charged at the previous rate until the credit is used up, some of them then backtracked on this and I believe that most people would have started paying at the more expensive rate straight away.

It's also the case that, as most prepay customers are on lower incomes, they don't have enough spare money to preload enough to make a meaningful saving even when it worked like this.

Direct debit is slightly cheaper, however i stay on paygo because i can see exactly when are using loads and im never hit with a huge unmanageable bill.

Definitely.
I panicked and put extra on my gas meter in April. £50. I've seriously not topped it up since! This is 3 adults , 3 bed house , gas CH and cooker.
Electric £50 pm does us as well.

I'm on a top up metre, was in the house when I moved in. I topped up as much as I could before 1st April and have only just starting paying at the higher amount since I had to top up again. If I was to change now it have to be onto a smart metre and ive heard a variety of pros and cons about them. The main disadvantage of a top up metre is being able to get the key charged when it's inconvenient timing.

This thread is a perfect illustration of how poorly people understand energy pricing.

If you think your prepaid meters are 'cheaper' than paying by DD - you're wrong. Prepaid meters carry a premium additional charge OR are exempt from a DD discount. Either way, it's always more expensive.

People on prepaid meters are managing the price increases better than those on DD right now - because we're in a low usage time of year and they're only paying for what they use right now.

Someone on a prepay meter may be using £80 of gas a month now and congratulating themselves as their neighbour is paying a £180 DD. But the person on DD will pay that £180 every month, the higher usage months are built in and spread over a year.

They'll still be paying £180 a month between September and March whilst people on prepay meters will need to be feeding it with £280 to keep their house warm as they still need to pay for their usage which will be far, far higher than now.

A prepaid meter that cannot afford to be topped up enough to keep the radiators warm in the winter is going to be a huge, huge problem soon. If you're on prepaid now, I hope you're also trying to save money alongside to cover you for when your usage is suddenly x 4 or x5 when it's cold and dark out.