# Interest Rates Explained

> What AER means, the difference between fixed and variable rates, and how the Bank of England base rate affects your savings and borrowing.

Canonical page: [/banking-savings/interest-rates](/banking-savings/interest-rates/) · Last reviewed: 2026-08-22

Interest is the cost of borrowing money, and the reward for saving it. Understanding how rates are quoted helps you compare products fairly.

## Key information

- AER is used to compare savings rates over a year
- APR is used to compare the cost of borrowing
- Rates can be fixed (unchanging) or variable (can move)
- The Bank of England base rate influences many rates across the market

## AER and APR

AER (Annual Equivalent Rate) shows what you would earn on savings over a year, taking compounding into account, so you can compare accounts fairly. [APR](/credit-borrowing/apr-explained) (Annual Percentage Rate) does the same job for borrowing, bringing interest and certain compulsory charges into a single yearly figure. A [compound interest calculator](/tools-calculators/compound-interest-calculator) can show how that compounding builds up over time.

## Fixed versus variable rates

A fixed rate stays the same for an agreed period, giving you certainty. A variable rate can rise or fall — often in response to wider changes in the market. Fixed rates protect you if rates fall but mean you miss out if they rise; variable rates do the opposite. The same choice between fixed and variable applies to a [mortgage rate](/mortgages/fixed-vs-variable-rates).

## The Bank of England base rate

The Bank of England sets a base rate that influences the cost of borrowing and the return on saving across the economy. When the base rate changes, lenders and savings providers often (but not always) adjust their own rates. It is a strong influence rather than a guarantee that any individual product will change.

## Your rights

- Providers must tell you clearly what rate applies and give appropriate notice of changes to a variable rate.
- If you think a rate change or the way a rate was presented was unfair, you can complain and escalate to the Financial Ombudsman Service.

## Official sources

- [Bank of England — the base rate](https://www.bankofengland.co.uk/monetary-policy/the-interest-rate-bank-rate)
- [Financial Ombudsman Service](https://www.financial-ombudsman.org.uk)

## Related

- [Savings Accounts](/banking-savings/savings-accounts/)
- [APR Explained](/credit-borrowing/apr-explained/)
- [Compound Interest Calculator](/tools-calculators/compound-interest-calculator/)

## Sources

- Bank of England — [Bank Rate](https://www.bankofengland.co.uk/monetary-policy/the-interest-rate-bank-rate) (accessed 2026-08-22)
- MoneyHelper — [Interest rates explained](https://www.moneyhelper.org.uk) (accessed 2026-08-22)