Complete Guide to No-Deposit Electricity Plans (2024)

Many homeowners in states that have electricity market deregulation don’t realize that they have an energy choice. Among those that do, few understand the different types of energy plans they can choose and how to pick the best one for their energy needs and budget. One popular option is the no-deposit energy plan, which minimizes the upfront costs of switching plans.

What Is a No-Deposit Electricity Plan?

Most electric companies require a deposit when you sign up for a new energy plan, which means you’ll have an upfront payment due before any energy is delivered to your home. A no-deposit energy plan is exactly what it sounds like: It’s a plan you can switch to that doesn’t come with an upfront sign-up fee. You won’t be charged anything until your first bill is due, at which point you’ll be charged per kWh, plus (typically) a standard electric service fee.

How Does a No-Deposit Energy Plan Work?

A no-deposit electricity plan works very similarly to other energy plans, and, in fact, they can be nearly identical to other options. No-deposit plans can include a contract for a specific term, they can have a variable or fixed rate per kWh and they can include introductory per-kWh rates. The primary difference is that there is no sign-up fee for no-deposit energy plans.

In most cases, sign-up fees are used by utility companies as a way to offset losses in the case of a non-paying customer. You make a payment upfront, which minimizes how much the power company loses if you fail to pay your bill at any point throughout your contract. 

With no-deposit plans, electricity companies typically use a credit check to qualify new customers with good credit for these plans, which helps rule out customers who are below the credit threshold and are more likely to miss a payment. Alternatively, companies may offer prepaid energy plans, which are a type of no-deposit plan.

Beyond this one significant difference, your no-deposit energy plan will work just like any other option. You’ll still receive monthly or quarterly electric bills, depending on your energy provider, and you’ll still be subject to the contract if there is one.

Why Do Electric Suppliers Normally Require a Deposit?

As mentioned above, energy companies have deposit requirements to recover some of the potential losses they’d face if a customer is unable to pay their energy bill. 

Upfront deposits are almost always required for customers with bad credit, but if you’re willing to be subjected to a credit check and pass, you could get an energy plan that normally requires a deposit without the need to pay it. The credit check is used to verify the likelihood that a customer will pay their energy bill, and the decision to charge a deposit or not is based on that risk.

Are No-Deposit Plans the Same as Prepaid Energy Plans?

No-deposit plans and prepaid plans — also called pay-as-you-go plans — can be the same, but that isn’t always the case. No-deposit energy plans are regular plans in which the sign-up fee is waived for a customer with a qualifying credit score. Prepaid plans allow customers to pay upfront for a specific amount of power while avoiding a sign-up fee.

Prepaid plans require that you place money into an account via a bank deposit or credit card payment, and that account will be drawn from for billing purposes. Prepaid energy plans let you avoid a deposit, and there is no ID requirement, but they also can lead to power outages if you forget to top up your account.

Most power and light companies will send updates about your electricity usage — gathered from smart meters in most cases — to reduce the risk of this happening. Plus, since you’re never charged beyond what you place in your energy account, you’ll always know the maximum you’ll pay for energy, which helps budget and save more effectively.

Here’s a video explaining prepaid energy plans: