Money Saving Expert Martin Lewis has revealed the cheapest way to pay your energy bill ahead of the energy price cap rise in October.
The price cap is set to rise to £3,549 on October 1, Ofgem confirmed, an 80% increase on the previous figure of £1,971.
In his latest MoneySavingExpert email, Martin Lewis explained that the price cap affects households differently depending on their payment method.
The price cap figure of £3,549 applies to homes on default tariffs paying by direct debit and based on typical use.
Martin Lewis said: “I've seen much confusion about this on social media, so I want to clear it up. The price cap depends on the payment method.
“Here are the new average price cap rates for someone on typical use.”
People on prepayment meters will see a smaller rise of 79% but will still be paying more as a result of a higher starting point.
Typical use costs for prepayment will rise to £3,608 from £2,017.
The same is true for those on receipt of bills, who will also see a 79% increase from £2,100 to £3,764 per year.
Martin Lewis explained: “The prepay cap is 2% more than direct debit, receipt of bills 6% more (it can vary by firm - we're going to do some work on that).
“Ditching direct debit may help with your cash flow if your direct debit is set too high, but it's important to understand that in the long run you'll pay more, whereas if you overpay while on direct debit you're eventually due that money back.”
Energy cap explained
Energy regulator Ofgem has created a helpful video explaining exactly what the energy price cap is.
Watch it here:
🙋A question we often hear is “what is the price cap?”
— Ofgem (@ofgem) January 25, 2022
While we don't increase or decrease the price of energy, we calculate the level of the government's #EnergyPriceCap that applies to default energy tariffs.
This may affect you. See how it works📺 https://t.co/7SyVaj2ogq pic.twitter.com/4wqpvMDGpl
No immediate extra help will be announced by Boris Johnson’s Government, with major financial decisions being postponed until either Liz Truss or Rishi Sunak is in No 10 after the Tory leadership contest.
Based on Wednesday’s gas prices, experts at consultancy Auxilione think the cap will reach £5,210 in January 2023 and £6,823 in April.
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