Many people want to reduce their gas and electricity bills and are wondering if switching to a prepayment meter will help.
So could a prepayment meter help you to use less energy and budget more easily for these high prices? Sometimes a supplier will suggest you should change, saying the budgeting will be easier.
But in 2022 and early 2023, many energy suppliers forcibly installed prepayment meters in homes where people were in arrears. Or switch a smart meter to work as a prepayment meter.
This article looks at the pros and cons of a prepayment meter and whether one really will help you budget better.
Types of gas and electric meters
Let’s start by looking at the different sorts of meter as this can be confusing.
A meter measures the energy you use.
The main difference between the types is how you have to pay for the energy:
- with a prepayment meter you have to pay for your energy before you use it;
- with a credit meter you pay afterwards, eg by direct debit or by paying when a bill arrives.
A smart meter can work in “prepayment mode” or “credit mode”. You may have had a smart meter installed “in credit made” so you can see the extra information – it has a display showing what you have used in a day/week and what that has cost. But your supplier can then decide to switch your smart meter to work in prepayment mode – sometimes this is happening without people even being told.
There are two different ways to add money onto a prepayment meter:
- with an old-style pre-payment meter you load a key or a card with money at some local shops or a Post Office. Then you update your meter with this. The picture below shows an old-style prepayment meter with a green key being used.
- with a smart meter used as a prepayment meter you can load up the money online or with a key/card.
Pros – a prepayment meter may appear to help with budgeting
Some people find energy bills very confusing:
- lots of small numbers with decimal places that seem to add up to a fortune;
- abbreviations such as kWh don’t help.
Using a prepayment meter means you can think in real pounds about what you are spending.
It also lets you put a cap on what you spend – if you can only afford £20 a week, that’s what you load up. And you can see how much of it you have left.
Cons – the big problems with prepayment meters
Prepayment meter charges are more expensive
£10 buys you less electric and gas when you are using a prepayment meter. The exact prices depend on where in the country you live, see What are the energy price guarantee unit rates? for the details.
It isn’t a lot more. If this was the only problem with prepayment meters, you may feel it’s worth paying a bit more if it helps you budget better and is more convenient.
But added to the other problems here, it’s another reason to avoid them if you can.
UPDATE – from July 2023, prices for gas and electric on a prepayment meter were changed to be the same as if you were paying by direct debit. This will save the average household about £45 a year,
Standing order charges have to be paid even if you use little or no energy
There are two charges for gas and for electricity – the unit price and a daily standing charge.
The unit charge for using a prepayment meter is nearly the same as the unit charge if you pay by direct debit. But the average daily standing charges are much higher:
- for gas, the standing charge if you pay by direct debit is 28p a day. When you have a prepayment meter, it’s 38p a day;
- for electricity, the standing charge by direct debit is 46p a day. With a prepayment meter it’s 51p a day.
(Those are round numbers and again they vary by region, see the link above for what yours would be.)
So if you have gas and electric, you will be paying about £27 a month on a prepayment meter before you use any energy at all.
What can happen? A couple of examples:
- Say you were short of money so didn’t top up the gas when it ran out. You left it off for 10 days until it got very cold so you added £20 and put the heating on. Immediately £5.10 of your £20 top-up is deducted to pay for the standing charge for the 10 days it was off. And more is deducted if you are repaying arrears. So you may get very little heat for that £20.
- If you try to just use the heating in the evening when it’s coldest, the high standing charge will mean you are paying a lot for not much heat.
This is a cruel system that penalises people who are trying to use as little energy as possible.
You face the highest charges in winter when you need it the most
Many people’s main reason for wanting to reduce their usage is that they can’t afford the direct debit their energy supplier is asking for.
But a direct debit evens out your energy bills across the year. You pay the same in winter as you do in the summer. This makes it easier to budget for the extra energy you will need when it is coldest.
If you switch to a prepayment meter in the summer or autumn, it may feel like you are saving money and you are more in control. But it means you will face incredibly high costs in the coldest three months, with high energy usage being is charged at the current high prices.
That is very hard to budget for, not easier. It leads to the nightmare of not being able to afford to put enough money onto a prepayment meter in January and February.
A cold house isn’t good for anyone. If anyone in your house has health problems that are made worse by the cold – asthma, arthritis etc – then it can be dangerous. It can harm your mental health. Cold makes condensation, damp and mould problems worse.
If you think your supplier is setting your direct debit too high, perhaps because you will be using less this year, read My energy direct debit isn’t just too high, it’s wrong. It’s much better to try to get the DD set at a more reasonable level than switch to a prepayment meter.
“Self disconnection” is increasing
It is incredibly rare for anyone to have their energy supply disconnected for arrears – less than 10 people a year. Instead suppliers move customers onto prepayment meters. But if you don’t have enough money to top-up, the result is the same – cold homes and misery.
That is why Citizens Advice calls prepayment meters:
disconnection by the back door.
In 2023 Citizens Advice has been seeing record numbers of people in desperate situations. This sort of problem used to be confined to the winter, but all through the summer, people have been in trouble. Although the energy prices have now dropped below last winter, the £400 help with energy bills in winter 22-23 has ended. So this coming winter unless you use more energy than average you won’t see any improvement in your bills, and low energy users will be worse off.
Old-style meters are a nuisance to top up
It isn’t always easy to get to a top-up point to add money to a key or card.
You may have to travel a long way, especially in rural areas. The travel itself may cost you money, reducing what you have to add onto the meter. If you are unwell or disabled, or you have caring responsibilities, this makes it even harder.
A smart meter working in prepayment mode gives you more options as you can top up online.
You can’t easily switch back from a prepayment meter
You may be thinking, well I’ll give it a try and see how it goes.
But some suppliers make it hard to switch back from a prepayment meter. They may insist you have to repay any arrears first. And some may ask you to pay a “security deposit” to change back.
Verdict – don’t ask for a prepayment meter!
In previous years, some people found a prepayment meter a help with their budgeting. But now the huge increase in energy prices means the problems now outweigh the convenience of simpler budgeting.
This is now not a sensible option for most… and for some with health problems it may be actively dangerous.
So you have to be VERY sure this is a good move for you before you ask to be switched to prepayment. Just thinking it may help a bit with budgeting isn’t a good reason to take such a big step which may be hard to reverse.
This is the first in a series of articles looking at prepayment and smart meters.
The next articles are“Should I get a smart meter?”
and 9 practical steps to avoid having a prepayment meter.