Annual equivalent rate, or AER, is a standardised figure that shows the interest a savings or deposit account would pay over a year once compounding is taken into account. It lets accounts be compared regardless of how often interest is paid.
General information, not financial, legal, or tax advice. Verify current terms and eligibility with the provider before applying.
How the annual equivalent rate works
AER, the annual equivalent rate, is a notional rate that expresses the interest on a savings or deposit account as if it were paid and compounded once a year. It assumes that interest stays in the account, so that interest already paid itself earns interest. Because it standardises for how often interest is paid, AER lets a saver compare two accounts even when one pays interest monthly and another pays it annually. In the United Kingdom, providers are expected to quote AER on savings products so that advertised rates can be compared on a consistent basis.
AER compared with the gross rate
The gross rate is the interest before any tax, at the stated payment frequency, while AER restates that rate to reflect compounding over a full year. When interest is paid once a year and nothing is added in between, the gross rate and the AER are the same. When interest is paid more often, such as monthly, the AER is slightly higher than the gross rate, because the earlier payments compound through the year. AER does not include account fees, charges, or tax, so a headline AER does not by itself show the net return after costs.
Why it matters to a business
A business comparing interest bearing accounts or savings products can use AER to judge which pays more over a year without having to adjust for different payment schedules. Because AER assumes interest is left in the account to compound, the amount a business actually earns can differ if it withdraws the interest, if the rate is variable and changes, or if an introductory bonus rate ends. A business should also check any fees, access terms, and whether the rate is fixed or variable, since AER alone does not capture these. Confirm the current rate and terms with the provider before relying on a quoted AER.
Frequently asked questions
What is the annual equivalent rate?
What is the difference between AER and the gross rate?
Does AER include fees?
Why do banks quote AER?
Definitions, fees, features, and eligibility change and vary by region. This page was last reviewed on 23 October 2025. Confirm current terms with the provider before applying.