How to pay for your energy bills

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Energy bills can be confusing at the best of times, before you even consider the different ways you can actually pay for your energy usage. Below we cover each of the payment options available, explain how they work and highlight the benefits and the drawbacks.

Monthly Direct Debit

With a Monthly Direct Debit, you set an amount that automatically comes out of your account each month on a specified day to cover your energy bills. As energy use fluctuates so much, it would be very rare for your monthly payment amount to actually cover your usage exactly, so each month you are likely to over pay or under pay by an amount.

If you regularly overpay then you will build up credit on your account and in time your Monthly Direct Debit amount will come down.

If you regularly underpay then you will build up a debt on your account and your energy supplier will increase your Monthly Direct Debit amount in order to get you back in the black.

The good thing about Monthly Direct Debits is that they are the cheapest way to pay for your gas and electricity, as energy suppliers provide a discount to customers paying this way as a reward for the convenience of receiving a regular and frequent payment towards energy bills.

Quarterly Direct Debit

This payment method is exactly the same as a Monthly Direct Debit with the exception that the payments are taken quarterly to cover three months worth of energy use. As a result each payment is three times more expensive, but of course you make a payment three times less frequently.

Energy suppliers also offer a discount to customers for paying via Quarterly Direct Debit, however it is not as great a discount as provided to customers paying by Monthly Direct Debit, so most people are likely to opt for the monthly payment option wherever possible.

Payment on receipt of bill

As the name suggests, with payment on receipt of bill once your bill arrives every quarter you then pay for the energy you’ve used in the previous three months. This payment can be made via a variety of different methods such as over the phone, in banks by cash or cheque etc. so this is a good option for anyone who is uncomfortable with arranging a regular Direct Debit from their bank account or is unable to do so for whatever reason.

The bad news is that energy suppliers don’t offer any discount for customers choosing to pay on receipt of bill, so your overall energy costs will be greater than if you were to choose one of the Direct Debit payment methods.

Bill Payment Options - Price differences

The table below provides an illustration of the discounts available and the overall price difference between the three payment methods listed above:

Payment method Average annual bill before discount Discount %age Discount value Cost after discount
Monthly Direct Debit £1345.65 6% £80.74 £1264.91
Quarterly Direct Debit £1345.65 3% £40.37 £1305.28
Payment on receipt of bill £1345.65 0% £0.00 £1345.65

Prices are accurate at the time of writing and assume a medium usage of 3,100kWh electricity and 12,500kWh gas. All prices are based on E.ON Energy Fixed 1 year v4 (with Tesco points)

Prepayment Meters

There is also a fourth payment option, which is via prepayment meter. Prepayment meters are typically the most expensive way to pay for your gas and electricity usage. With a prepayment meter you pay for your energy usage upfront using a top-up key or tokens. Most home owners would want to avoid a prepayment meter wherever possible however they are ideal for certain situations such as landlords who rent a house out, as it ensures tenants can never accumulate a debt on an account. You can read more about prepayment meters here.

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