How a direct debit might not prevent a sharp energy bill increase

Energy billSigning up to an annual direct debit payment plan from your energy supplier is supposed to help prevent bill shock as your payments are spread equally throughout the year. But it might not work like that.

One way to avoid big winter bills is to pay by direct debit. Energy suppliers offer this option which enables you to spread the cost of your energy bills over the year.
Well that's the idea anyway. But I've just had a nasty shock from my supplier Scottish Power, which has emailed me saying it's going to increase my monthly direct debit by over 50% to cover my winter bills.

Like many people I switched suppliers last autumn when the latest round of price hikes came in. At the time Scottish Power had a good tariff with fixed prices until 2014. So I duly supplied details of my previous year's usage; Scottish Power worked out the direct debit payments and I made the switch.

One winter later, my account is just over £300 in debit as we move towards the summer months when the heating in our house will be off until October.

I gave Scottish Power a call to point out that having joined in the autumn it was no surprise that my account was now in the 'red'. But with the heating now off for summer (hopefully), within a few months my account should be back on an even keel.

But no, Scottish Power wants to increase payments by another £49 a month. It has also given me the option of clearing the full £300 in one go.

Surely this post winter bill hike goes against the principle of annual direct debit payment plans?

Can suppliers do this?
Ofgem, the energy regulator, says that while direct debit deals are designed to enable customers to evenly spread the cost of their energy bills over the year, suppliers do have the right (under Section 27 of the Gas Supply Licence) to increase direct debit payments to cover any shortfall.

Should this happen, a supplier must explain the reason and give you ten days' notice of any change to your direct debit.

In Scottish Power's case it says it reviews customers' energy accounts every three months "to ensure customers pay for the energy they use and to prevent any debt from building up on their account". And it says that due to last winter's extended cold snap "many customers have used more energy across the period which has meant an increase to their direct debit installments", although it won't say how many people are affected.

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Do other suppliers do this?
Another of the 'big six' energy suppliers, E.ON, also monitors customers' accounts up to four times a year, which can bring payment changes.

Yet other suppliers only do this once a year, which means your account gets the chance to even out over the course of a full year's usage.

British Gas says the whole point of having an annual 'direct debit payment plan' is to enable customers to manage their payments and know exactly how much they're going to be pay every month. Its spokesperson says, "We expect customers to come out of the winter in debit and move into credit during the summer."

British Gas reviews customers' direct debit payments annually on the anniversary of the account opening and it's at this point future direct debit payments may be adjusted.

SSE also says it reviews customers' accounts annually, on the anniversary of their first payment, and may increase or decrease direct debits based on a full year's usage.

However EDF reviews customer direct debit accounts twice a year as do npower which says it doesn't want customers to owe it money, so it will look to increase direct debit payments if the account's in debit after the winter months.

When you're comparing energy deals, price is the major consideration, but if you're planning to switch just before the winter, it may be worth asking how many price 'reviews' your new supplier undertakes throughout the year. This way you'll be prepared for a post winter bill hike or secure in the knowledge that bill payments are only adjusted annually.

What happens if your account is in credit?
Suppliers want the money fast enough when you owe them, but how quick are they to put their hand in their pocket when it's the other way round?

According to Ofgem you should be able to get any credit back; although the point at which suppliers automatically stump up does vary.

In order to get an 'automatic' credit refund at your account 'review' date you'll need to be at least £100 in credit with British Gas, £150 with EDF, and have overpaid the equivalent of three monthly payments with Scottish Power although with E.ON it's just £5.

However if you actually ask for any outstanding credit to be refunded it should be done regardless of the amount you're owed.

Can I complain about rising direct debits?
If you're unhappy about any proposed increase in direct debit payments or have problems getting credit back from your supplier, it's best to speak to your energy company in the first instance. And if the problem isn't resolved you can follow it up with the Energy Ombudsman.

Could you save by switching your gas and electricity supplier? Find out here

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How a direct debit might not prevent a sharp energy bill increase

It is reasonable to assume that if you take out a mobile phone contract at £30 a month for 24 months that's exactly what you'll pay unless you exceed the tariff. Yet mobile phone providers have come under fire for a snag buried in the small print – a clause to allow mid-contract price rises.

Prices are rising by a median of 81p a month and 70% of consumers are completely unaware off this sneaky move, according to Tesco Mobile, so be sure to check any new contracts before you sign the dotted line.

Financial service providers always refer to 'typical APR' in advertising to attract customers with favourable rates of interest.

Yet the typical APR on loans and credit cards is only available for those applicants who have a squeaky clean credit record, everyone else could end up with a much higher rate. For example, under EU rules, credit card providers only have to provide the typical APR advertised to 51% of applicants.

So always consider this when applying for accounts and products, and if approved – look out the actual APR that you will be charged.

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Make sure to fully understand these terms before opening a savings account and if you choose an account with a six or 12 month bonus, remember that this will plummet when the bonus period ends.

Cashback credit cards that pay you a small percentage each time you spend on the card are full of loopholes in the small print. All have a maximum spend, but many have a minimum spend too.

For example, the Sainsbury's Cashback Low Rate card advertises that it offers users 5% cashback for the first three months. However the 5% cashback is capped at £50 a month. A further 5% cashback is subject to you spending £500 a month on the card (£250 of that at Sainsbury's).

Attempt to repay your mortgage early and you may be greeted with a hefty fee in the form of an early repayment charge. These penalties vary from lender to lender and even deal to deal, but are typically be around 10% of the outstanding balance.

Details of any early repayment charges should be clearly outlined in your mortgage contract but it is worth double-checking with your lender before you try to make a payment.

Insurance is an incredibly complex area of personal finance and different forms of cover are riddled with different hitches that make it crucial to read the small print. Failure to do so could lead you to pay for a product you would be never be able to claim upon, or unknowingly do something that invalidates your claim.

Always buy the right level of cover for your needs and pay close attention to any exclusions in the policy wording. For example, many travel insurance policies for winter sports won't pay out for treatment of injuries incurred while under the influence of alcohol.

Think a credit card can't do any damage at home in your drawer? Think again. Some credit and store cards charge a dormancy fee if you don't use them regularly.

For example, all Santander-issued store cards, including Topshop and Laura Ashley cards among others, charge a fee of £10 if you remain in debit for three consecutive months.

Exceed the monthly usage allowance in your broadband deal and you could be hit with a huge fee. Common with the cheapest broadband deals on the market, penalty charges for going over your contracted limit can push your bills up even higher than if you paid for a deal with unlimited usage.

According to Talk Talk, some households are being forced to pay an additional £40 per month for exceeding their usage allowance. BT for example, charges £5 per every 5GB extra used.

Familiarise yourself with the download limit in your package and the penalties for exceeding it, decide whether you are better off with an unlimited deal.

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