{"id":197482,"date":"2019-06-28T14:14:35","date_gmt":"2019-06-28T13:14:35","guid":{"rendered":"https:\/\/www.finder.com\/uk\/?p=197482"},"modified":"2024-11-06T10:09:09","modified_gmt":"2024-11-06T10:09:09","slug":"what-is-annual-equivalent-rate-aer","status":"publish","type":"post","link":"https:\/\/www.finder.com\/uk\/savings-accounts\/what-is-annual-equivalent-rate-aer","title":{"rendered":"What is annual equivalent rate (AER)?"},"content":{"rendered":"<p>AER is expressed as a percentage and reveals how much you\u2019ll earn in a year, after compound interest is considered.<\/p><p>This is necessary because an account\u2019s gross \u201cinterest rate\u201d doesn\u2019t consider compound interest at all.<\/p><p>As such, AER will always be higher than the gross interest rate, as long as it is calculated for more than one compounding period.<\/p><p>AER is sometimes known as the effective annual interest rate or annual percentage yield (APY).<\/p><h3>A practical example of when AER comes in handy<\/h3><p>John attempts to compare two savings accounts:<\/p><ul><li>Account A has an \u201cinterest rate\u201d of 3.7% and pays interest monthly;<\/li><li>Account B has an \u201cinterest rate\u201d of 3.71% and pays interest annually.<\/li><\/ul><p>If the AER isn\u2019t stated, John will have to calculate the compound interest himself, which isn\u2019t easy. The AER makes it simple for him to choose the best rate.<\/p><h3>How to Calculate AER<\/h3><ol><li>Divide the gross interest rate by the number of times a year that interest is paid.<\/li><li>Add one.<\/li><li>Raise the result by the power of the number of times a year that interest is paid.<\/li><li>Subtract one.<\/li><li>Express as a percentage.<\/li><\/ol><p>So for a savings account with a 5% gross interest rate that pays interest monthly\u2026<\/p><ul><li>0.05\/12 = 0.00416666666<\/li><li>0.00416666666 + 1 = 1.00416666666<\/li><li>1.00416666667<sup>12<\/sup> = 1.05116189788<\/li><li>1.05116189788 -1 = 0.05116189788<\/li><li>AER = 5.11%<\/li><\/ul><p>Note: When interest is paid annually, the AER will be the same as the gross interest rate.<\/p><div class=\"newsletter-wrapper\"><\/div>\n<div class=\"newsletter-signup sticky-mode theme-green\" data-accountcreateflow=\"newsletter\" data-displaydelay=\"0\" data-showformembers=\"1\">\n    <div class=\"signup-grid\">\n                     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class=\"error-msg\"><span class=\"error-msg-text\">Error placeholder<\/span> <span class=\"error-msg-sign-in\"> Click <a class=\"error-msg-sign-in-link\" href=\"https:\/\/www.finder.com\/uk\/user-profile\/sign-in?returnTo=https%3A%2F%2Fwww.finder.com%2Fuk%2Fuk%2Fwp-json%2Fwp%2Fv2%2Fposts%2F197482\">here<\/a> to sign in<\/span><\/p>\n                    <\/div>\n                    <div class=\"links\">\n                                                    <a href=\"https:\/\/finder.com\/uk\/about-us\/competition-winners\">Winners<\/a> |                                                    <a href=\"https:\/\/www.finder.com\/uk\/about-us\/example-email#savings\">Emails<\/a> |                                                    <a href=\"https:\/\/www.finder.com\/uk\/communication-preferences\">Unsubscribe<\/a> |                                                    <a href=\"https:\/\/www.finder.com\/uk\/privacy-policy\">Privacy<\/a>                                             <\/div>\n                <\/div>\n            <\/div>\n                <div class=\"hide-btn\">\n            Hide\n            <svg class=\"luna-icon luna-icon--xsmall has-margin-top-xxsmall\">\n                <use xlink:href=\"#chevron-down\"><\/use>\n            <\/svg>\n        <\/div>\n    <\/div>\n<\/div>\n\n<h3>What is the difference between APR and AER?<\/h3><p>APR considers charges and fees, while AER doesn\u2019t.<\/p><p>APR is used to calculate the total cost of mortgages and loans, because these often have huge one-off fees attached to them that should be considered by borrowers.<\/p><p>Savings accounts rarely have any fees attached to them, which is why AER is used instead.<\/p><p>In the extremely common case of a savings account having no fees attached, the AER and APR would technically be the same.<\/p><style type=\"text\/css\">\n    .survey-response {\n        overflow-x: auto;\n        max-width: 800px;\n    }\n\n    .survey-response .luna-table th,\n    .survey-response .luna-table td 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}\n\n        .source-container {\n            margin-left: 2rem;\n            margin-right: 2rem;\n        }\n    }\n\n<\/style><h4>Finder survey: How confident do you feel teaching your child\/children about the bank base rate?<\/h4><div id=\"scale-surveys-10015-4052\" class=\"survey-response u-grid u-grid--gutterLarge\"><div id=\"view---noslice-\" class=\"u-grid__col u-1\/2@s u-1\/1 aligncenter size-full chart-container\"><\/div><style>\n\t\t\t#scale-surveys-10015-4052 text,\n\t\t\t#scale-surveys-10015-4052 svg text,\n\t\t\t#view---noslice- text,\n\t\t\t#view---noslice- svg text {\n\t\t\t\tfont-family: 'Modern Era', sans-serif !important;\n\t\t\t}\n\t\t<\/style><script type=\"text\/javascript\">\n\t\t\t\t(function() {\n\n\t\t\t\t\tvar packageToLoad = 'corechart';\n\t\t\t\t\tvar eventName = 'GoogleChartsLoaded-' + packageToLoad;\n\t\t\t\t\tvar event = new Event(eventName);\n\n\t\t\t\t\tdocument.addEventListener(eventName, function() {\n\t\t\t\t\tconsole.log('called event!', eventName);\n\n\t\t\t\t\tfunction drawChart() {\n\t\t\t\t\t\tvar chartType = 'pie';\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tvar data = google.visualization.arrayToDataTable([\n\t\t\t\t\t\t\t['Response', ''],\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t['Neither confident nor unconfident', 30.49],\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t['Quite unconfident', 23.24],\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t['Quite confident', 19.76],\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t['Very unconfident', 15.69],\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t['Very confident', 10.82],\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t]);\n\t\t\t\t\t\t\n\t\t\t\t\t\tvar options = {\n\t\t\t\t\t\t\tlegend: {\n\t\t\t\t\t\t\t\tposition: 'none'\n\t\t\t\t\t\t\t},\n\t\t\t\t\t\t\tcolors: ['#1D53FF', '#00B2FF', '#FFD23B', '#C3F53C', '#B469FF', '#FF73A9', '#1DD751', '#DB2420', '#E5F7FF', '#FFF9E5', '#EEF5DC', '#F2E5FF', '#FFE5EF']\n\t\t\t\t\t\t};\n\n\t\t\t\t\t\tvar chart;\n\t\t\t\t\t\t\t\t\t\t\t\tchart = new google.visualization.PieChart(document.getElementById('view---noslice-'));\n\t\t\t\t\t\t\/\/ Pie chart specific options can go here\n\t\t\t\t\t\toptions.chartArea = {width:'100%',height:'100%'};\n\t\t\t\t\t\t\n\t\t\t\t\t\tchart.draw(data, (chartType == 'pie') ? options : google.charts.Bar.convertOptions(options));\n\t\t\t\t\t}\n\t\t\t\t\t\tdrawChart();\n\t\t\t\t\t});\n\n\t\t\t\t\tfunction init() {\n\t\t\t\t\t\tconsole.log('calling init', eventName);\n\t\t\t\t\t\tif (typeof google !== 'undefined' && google.charts) {\n\t\t\t\t\t\t\tconsole.log('found charts', google, packageToLoad);\n\t\t\t\t\t\t\tgoogle.charts.load('current', {'packages':[packageToLoad]});\n\t\t\t\t\t\t\tgoogle.charts.setOnLoadCallback(function() {\n\t\t\t\t\t\t\t\tdocument.dispatchEvent(event);\n\t\t\t\t\t\t\t});\n\t\t\t\t\t\t} else {\n\t\t\t\t\t\t\tconsole.log('retrying');\n\t\t\t\t\t\t\tsetTimeout(init, 100);\n\t\t\t\t\t\t}\n\t\t\t\t\t}\n\t\t\t\t\tinit();\n\t\t\t\t})()\n\t\t\t<\/script><div class=\"u-grid__col u-1\/2@s  u-1\/1 aligncenter size-full border-fix table-container\"><table class=\"luna-table js-tablesorter tablesorter tablesorter-default\" role=\"grid\"><thead class=\"luna-table__header\"><tr><th>Response<\/th><th><\/th><\/tr><\/thead><tbody class=\"luna-table__body\" aria-live=\"polite\" aria-relevant=\"all\"><tr><td><span class=\"row-color-icon\" style=\"background-color: #1D53FF;\"><\/span> Neither confident nor unconfident<\/td><td>30.49%<\/td><\/tr><tr><td><span class=\"row-color-icon\" style=\"background-color: #00B2FF;\"><\/span> Quite unconfident<\/td><td>23.24%<\/td><\/tr><tr><td><span class=\"row-color-icon\" style=\"background-color: #FFD23B;\"><\/span> Quite confident<\/td><td>19.76%<\/td><\/tr><tr><td><span class=\"row-color-icon\" style=\"background-color: #C3F53C;\"><\/span> Very unconfident<\/td><td>15.69%<\/td><\/tr><tr><td><span class=\"row-color-icon\" style=\"background-color: #B469FF;\"><\/span> Very confident<\/td><td>10.82%<\/td><\/tr><\/tbody><\/table><\/div><div class=\"u-grid__col u-1\/1 source-container\"><span class=\"source\">Source: Finder survey by Censuswide of  Brits, July 2023<\/span><\/div><\/div>","protected":false},"excerpt":{"rendered":"<p>The AER, or Annual Equivalent Rate, is the official rate for savings accounts. It&#8217;s designed to allow easy comparisons between accounts.<\/p>\n","protected":false},"author":645,"featured_media":191915,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"apple_news_api_created_at":"","apple_news_api_id":"","apple_news_api_modified_at":"","apple_news_api_revision":"","apple_news_api_share_url":"","apple_news_cover_media_provider":"image","apple_news_coverimage":0,"apple_news_coverimage_caption":"","apple_news_cover_video_id":0,"apple_news_cover_video_url":"","apple_news_cover_embedwebvideo_url":"","apple_news_is_hidden":"","apple_news_is_paid":"","apple_news_is_preview":"","apple_news_is_sponsored":"","apple_news_maturity_rating":"","apple_news_metadata":"\"\"","apple_news_pullquote":"","apple_news_pullquote_position":"","apple_news_slug":"","apple_news_sections":[],"apple_news_suppress_video_url":false,"apple_news_use_image_component":false,"footnotes":""},"categories":[1181],"tags":[],"asset_tag":[],"class_list":["post-197482","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-savings-accounts"],"apple_news_notices":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v24.9 (Yoast SEO v24.9) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What is annual equivalent rate (AER)? - Finder UK<\/title>\n<meta name=\"description\" content=\"The AER, or Annual Equivalent Rate, is the official rate for savings accounts. 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It&#039;s designed to allow easy comparisons between accounts.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.finder.com\/uk\/savings-accounts\/what-is-annual-equivalent-rate-aer\" \/>\n<meta property=\"og:site_name\" content=\"Finder UK\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/findercomuk\" \/>\n<meta property=\"article:published_time\" content=\"2019-06-28T13:14:35+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/cdn.finder.com.au\/finder-us\/wp-uploads\/sites\/3\/2019\/04\/savingsss-450.jpeg\" \/>\n\t<meta property=\"og:image:width\" content=\"450\" \/>\n\t<meta property=\"og:image:height\" content=\"250\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Matthew Boyle\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@https:\/\/twitter.com\/Matthew08411738\" \/>\n<meta name=\"twitter:site\" content=\"@findercomUK\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Matthew Boyle\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/www.finder.com\/uk\/savings-accounts\/what-is-annual-equivalent-rate-aer#article\",\"isPartOf\":{\"@id\":\"https:\/\/www.finder.com\/uk\/savings-accounts\/what-is-annual-equivalent-rate-aer\"},\"author\":{\"name\":\"Matthew Boyle\",\"@id\":\"https:\/\/www.finder.com\/uk\/#\/schema\/person\/52bc07212c35752f0a3345e22921fe37\"},\"headline\":\"What is annual equivalent rate (AER)?\",\"datePublished\":\"2019-06-28T13:14:35+00:00\",\"dateModified\":\"2024-01-08T10:18:04+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/www.finder.com\/uk\/savings-accounts\/what-is-annual-equivalent-rate-aer\"},\"wordCount\":366,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\/\/www.finder.com\/uk\/#organization\"},\"image\":{\"@id\":\"https:\/\/www.finder.com\/uk\/savings-accounts\/what-is-annual-equivalent-rate-aer#primaryimage\"},\"thumbnailUrl\":\"https:\/\/cdn.finder.com.au\/finder-us\/wp-uploads\/sites\/3\/2019\/04\/savingsss-450.jpeg\",\"articleSection\":[\"Savings accounts\"],\"inLanguage\":{\"@type\":\"Language\",\"name\":\"English\",\"alternateName\":\"en\"},\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/www.finder.com\/uk\/savings-accounts\/what-is-annual-equivalent-rate-aer#respond\"]}],\"copyrightYear\":\"2019\",\"copyrightHolder\":{\"@id\":\"https:\/\/www.finder.com\/#organization\"}},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.finder.com\/uk\/savings-accounts\/what-is-annual-equivalent-rate-aer\",\"url\":\"https:\/\/www.finder.com\/uk\/savings-accounts\/what-is-annual-equivalent-rate-aer\",\"name\":\"What is annual equivalent rate (AER)? - Finder UK\",\"isPartOf\":{\"@id\":\"https:\/\/www.finder.com\/uk\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.finder.com\/uk\/savings-accounts\/what-is-annual-equivalent-rate-aer#primaryimage\"},\"image\":{\"@id\":\"https:\/\/www.finder.com\/uk\/savings-accounts\/what-is-annual-equivalent-rate-aer#primaryimage\"},\"thumbnailUrl\":\"https:\/\/cdn.finder.com.au\/finder-us\/wp-uploads\/sites\/3\/2019\/04\/savingsss-450.jpeg\",\"datePublished\":\"2019-06-28T13:14:35+00:00\",\"dateModified\":\"2024-01-08T10:18:04+00:00\",\"description\":\"The AER, or Annual Equivalent Rate, is the official rate for savings accounts. 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