Deciding whether to lock in a rate for an extended time or opting for a month to month plan is an important consideration, but one that should be quite simple.
First and foremost, the general rule is that when rates are low, you want to lock in a rate for as long as possible, just as you would lock in a long-term fixed rate mortgage when interest rates are low. As it stands right now, electricity rates (and coincidently, interest rates) are currently at historically low levels.
That being said, even in this low rate environment it is appropriate under certain instances to select a short-term plan instead of the long-term plan.
Let’s take a look at several situations when month to month plans make sense:
- Your lease is up in the next few months and you are unsure if you are going to renew it.
- Your house is on the market and it may sell within the next several months.
- Electricity rates are at or near long-term highs and you expect them to turn lower.
- You have bad/no credit, yet you want to avoid paying a deposit.
The first two situations are similar in that both instances have residents who will be potentially moving out of their current location and into a new residence. With any electricity plan other than a month-to-month plan, there will be an early termination fee (ETF) charged to the customer if electric service is terminated before reaching the end of the contact. Getting stuck paying this fee should be avoided at all costs, and with a little planning, it’s easy to do. For example, if you may move out of your residence in 8 months, opt for a 6-month term instead of a 9-month.
The third situation listed above takes into account the electricity rate cycle. All-time high electricity rates were reached in the Summer of 2008, and we are currently (Summer of 2012) at historic lows. Back when rates were high, we were recommending month-to-month and 3-month plans to our clients, instead of longer terms. This worked out nicely for them, as electricity rates fell substantially beginning in the Fall of 2008. We are now recommending locking in these historic low rates for as long as you plan on staying in your current residence.
The final situation is one that we see at least a dozen times every day. When you have a bad credit score, electricity providers will, under normal circumstance, make you pay an up-front deposit (up to $400) before they will issue you electricity. The way around this is to go with a pre-paid electricity (also known as no-deposit or pay-as-you-go) plan. While these usually have higher rates than regular plans, pre-paid plans have the benefit of getting electricity to your residence without having to worry about a credit check. Although you do need to put money into your no-deposit electricity account right at the start, you can get the lights turned on by putting in as little as $50. That’s a lot better than posting a $400 deposit!
Please feel free to call us with any questions concerning your electricity needs. We are eager to help, and we can be reached at 214-550-0844.