What is AER? Annual Equivalent Rate

AER stands for Annual Equivalent Rate. 

An AER is provided for all savings accounts at Shawbrook. All UK regulated banks are required to provide an AER to help consumers compare products effectively. Some providers may also describe their interest rates using a gross interest rate in addition to an AER.  

While gross interest and AER are similar, they are not the same. Understanding the key differences between these two terms can help you make informed product choices to best meet your needs.  

This guide provides information about AER, including its definition, how it differs from other interest calculations like APR (Annual Percentage Rate), and the method of calculating interest. 

Gross interest 

Gross interest is the interest earned on a savings account before taxes or charges. It also represents the simple interest paid at a flat rate, without considering compounding (the interest earned on interest), which is why monthly gross interest rates are usually lower than annual gross interest rates.  

Gross interest is particularly important for individuals who receive their interest payments monthly and rely on this interest as a source of income.  

AER 

AER represents the rate of interest earned over one year, including compound interest, any bonus interest rates, and account charges. As a result, AER allows for a consistent comparison of different financial products. 

For example, a product with no bonus interest rate that states 4.5% gross interest would also have an AER of 4.5%. The monthly gross interest for the same product would be 4.41%, but the AER would still be 4.5% due to the impact of compound interest. 

AER is used for savings accounts to illustrate the interest you’ll earn. Whereas APR is the total annual cost of borrowing money and is usually associated with products such as personal loans, mortgages, and credit cards.  

To put it simply, APR is usually used to refer to what you pay back, while AER is the interest you will be paid. Both are expressed as percentage figures. 

You don’t need to worry about the AER formula itself. It’s simple to work out how much interest you’ll earn in a year. You just need to multiply your original deposit by the account’s AER. Keep in mind that the amount will vary if you withdraw money or invest more into the account.  

Now that you know more about AER, you can make a better-informed decision when saving. 

To compare the interest rates, you could receive with Shawbrook, visit our main Savings page. Or use our Savings Calculator to see how much interest you could earn in a year, shown in pounds, to help you compare our savings accounts.  

For more information on interest rates, visit our What are interest rates? Page.  

Please note, figures and calculations included above are for illustrative purposes only.