Finance glossary
AER — Annual Equivalent Rate
Also known as: Annual Equivalent Rate
In simple terms
AER shows what a savings rate really works out at over a year once interest is compounded, so you can compare accounts fairly no matter how often they pay interest.
On this page
What does AER mean?
AER stands for Annual Equivalent Rate. It shows the interest you would earn on savings over a year if the interest were added and left to compound, expressed as a single percentage. Because every provider must calculate it the same way, it is the fairest quick comparison between savings accounts.
The AER differs from the “gross” rate, which is simply the rate before any compounding is taken into account. Where interest is paid monthly, the AER is slightly higher than the gross rate because you earn a little interest on the interest already paid.
How AER works
AER assumes interest is paid and compounded once a year, so accounts that pay monthly, quarterly or annually can be lined up side by side. The more often interest is paid and left in the account, the closer the gross and AER figures move together.
AER assumes you leave the money and the interest untouched for the full year. If you withdraw the interest as income, or take money out, you will not actually earn the headline AER.
How could this affect me?
When you are choosing between savings accounts, comparing the AER is more reliable than comparing headline or monthly rates, because it already accounts for how often interest is paid.
Watch how long the quoted AER lasts. Many easy-access accounts include a temporary bonus for the first 12 months, so the AER you sign up to can drop sharply once the bonus ends.
Example
How a 5.00% gross rate paid monthly becomes a slightly higher AER:
| Gross annual rate | 5.00% |
|---|---|
| Interest paid | Monthly |
| Equivalent AER | 5.12% |
| On £10,000 over a year | about £512 interest |
Illustrative and rounded. The AER is higher than the gross rate because monthly interest compounds through the year.
Things to watch out for
- A headline AER often includes a temporary bonus that falls away after 12 months.
- The gross rate and the AER are not the same figure — compare AER with AER.
- You only earn the quoted AER if you leave both the money and the interest in place.
- Tax can reduce what you keep unless the account is an ISA or within your Personal Savings Allowance.
General information, not personal advice
Consumer Credit is an independent information service. We do not provide regulated financial advice or sell financial products. For advice on your own situation, speak to an appropriately authorised firm or a free service such as MoneyHelper. About Consumer Credit.
Sources
We checked this page against these official and authoritative sources.
- MoneyHelper, What is AER and how does it work? (opens in a new tab). Accessed 22 Aug 2026.
- FCA, BCOBS — banking conduct and savings disclosure (opens in a new tab). Accessed 22 Aug 2026.