AER is short for Annual Equivalent Rate. But don’t worry if that sounds a bit complicated. It’s simply one of the main types of interest rates used on savings accounts.
An AER shows the interest your savings might earn over a year, as a percentage of your balance.
It differs across savings accounts. So, you could look at the AER of each account to compare them at a glance, and get an idea of the potential interest.
As you may expect, a higher AER interest rate could lead to bigger returns on your savings.
The AER on a savings account could give you a realistic picture of what your money might earn.
That’s because banks include something called ‘compound interest’ when they calculate AER interest rates.
This is interest you earn on your savings – plus any previous interest you’ve received on them. In other words, it’s paid on top of what you have already made.
Like AER, gross interest is a type of interest rate that’s given to savings accounts. It’s a headline rate, showing the interest you might earn before tax deductions.
The main difference between the two is that the AER includes compound interest. But this isn’t the case with the gross interest rate.
So, an account’s AER could be higher than its gross rate if it pays interest multiple times a year.
The key difference between AER vs APR comes down to the products they work with.
APR is short for Annual Percentage Rate. You’ll generally see it when borrowing money, rather than saving. An APR can show the cost of borrowing cash with a certain loan or credit card. It includes the interest you’ll pay, plus other charges.
But you may see an AER when browsing different savings accounts. It’s all about the interest you might earn on your money after putting it away.
