AER (Annual Equivalent Rate)
The Annual Equivalent Rate is the standardised rate used for UK savings accounts. It shows what you would earn over a year if interest were compounded and paid at the same rate, allowing different savings products to be compared on equal terms.
A savings account paying 4% AER means £1,000 left in the account for a year would earn £40 in interest, assuming the rate stays the same.
- AER is for savings. APR is for borrowing. They look similar but answer different questions.
- AER assumes interest compounds at the stated rate for a full year. If you withdraw money or the rate changes, the actual return will differ.
- Promotional or introductory rates often look high but only last a short period before reverting to a lower standard AER.
Why it matters
AER lets you compare savings products fairly. Without a standard rate, providers could quote interest in different ways (monthly, quarterly, with or without compounding) and savers could not tell which one actually pays more.
AER puts every product on the same annual, compounded basis. A 4% AER and a 4% AER from two different banks pay the same return over a year if the balance and rules are identical.
Common confusion
The most frequent mix-up is between AER and APR. They are not opposites and they are not interchangeable.
- AER is for savings. Higher AER is better for the saver.
- APR is for borrowing. Higher APR is worse for the borrower.
Another confusion is around promotional rates. A “5% AER for the first 12 months” headline often hides a much lower standard rate after the bonus period ends. Always check what the AER drops to after any introductory period.
Finally, AER does not include tax, fees on accounts, or the impact of withdrawing money before the term ends on fixed-rate products. Read the small print before assuming the headline number is what you will earn.