What does AER mean in savings?
AER stands for Annual Equivalent Rate, and banks use it to show the interest rate your savings might earn if it was paid and added once a year. It helps you understand how much money you’ll make on your savings. As different savings accounts pay interest in different ways all providers are required to display an AER as a means of comparison - making it great for comparing savings options.
It helps you understand how much money you’ll make on your savings. As different savings accounts pay interest in different ways all providers are required to display an AER as a means of comparison - making it great for comparing savings options.
For example, if you’re comparing an ISA, fixed rate bond, or an easy access saving account, each account should show the AER. By showing the interest in a consistent yearly format, it is designed to make it easier for you to evaluate accounts with different terms and interest payments.
How does AER work?
AER works by showing the return on your savings once interest is taken into account over a full year. When a bank pays interest, if it’s added to your savings balance, you’ll start earning interest on both your original savings and the interest you’ve already earned.
To put it simply, it’s when interest earns interest. This is known as compounding. It creates a snowball effect, making your savings grow faster over time. Learn more about how interest on savings works.
It's important to note that interest can be paid daily, monthly or annually depending on the provider and account. Also, some providers allow savers to choose to have their interest paid out as an income. Where that happens, the interest earned is dependent on where the interest is sent to. If that’s a current account, it’s likely to be no interest at all.
That’s why two accounts with the same basic interest rate can grow differently; the timing and frequency of compounding changes how much you earn. Because AER standardises comparisons, it shows what the interest rate would be if interest was paid and added once each year.
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Here’s an example of AER
Imagine you save £5,000 in an account. The interest you earn depends on the rate, the frequency of interest payments and where the interest is paid to. Thanks to compound interest, your balance grows even more each year. Generally speaking, the higher the AER, the greater annual return on your savings.
Interest is paid monthly with Spring, so the balance grows each month as interest is added. You’ll also earn interest on money you’ve organised into savings pots with Spring’s Easy Saver account.
The balances shown below are summarised at the end of each year to make comparisons easier. Over a full year, AER brings that into one annual figure so it’s easier to compare accounts.
For example, here’s how your savings could grow over three years at two different rates.
1.00% AER
Based on a starting balance of £5,000 with an AER of 1%, assuming no further deposits or withdrawals are made:
| Year | AER | Annual interest earned | Balance at year end |
|---|---|---|---|
| 1 | 1.00% | £50 | £5,050.00 |
| 2 | 1.00% | £50.50 | £5,100.50 |
| 3 | 1.00% | £51 | £5,151.50 |
Note: Figures are illustrative only. Small differences may occur due to rounding.
4.00% AER
Based on a starting balance of £5,000 with an AER of 4%, assuming no further deposits or withdrawals are made:
| Year | AER | Annual interest earned | Balance at year end |
|---|---|---|---|
| 1 | 4.00% | £200.08 | £5,200.08 |
| 2 | 4.00% | £208.08 | £5,408.16 |
| 3 | 4.00% | £216.41 | £5,624.57 |
Note: Figures are illustrative only. Small differences may occur due to rounding.
What’s the difference between AER and gross interest?
When you look at savings accounts, you’ve likely seen the term gross interest as well as AER. While they might seem similar, they measure different things.
So, what’s the difference?
Gross interest
The rate banks actually pay on your savings balance, applied at a set frequency (for example, monthly or annually). It’s the underlying rate used to calculate the interest you’ll receive, before showing how compounding over time affects your total return.
AER(Annual Equivalent Rate)
A standardised comparison rate that shows what the interest would be over a year once the impact of compounding is taken into account. It adjusts for how often interest is paid, so you can easily compare savings accounts with different payment frequencies and understand which could offer a better overall return.
Remember, AER doesn’t tell the whole story
While AER is useful when you’re choosing a savings account, there are other factors that can affect your actual return.
Keep in mind that AER doesn’t include:
- Introductory or bonus rates: Some savings accounts offer a higher AER for a limited period, and these temporary rates could drop later. Always check how long an advertised rate lasts. Our research in January 2026 found that 28% of the top 50 easy access savings accounts were boosted by a short-term bonus rate.
- Interest ‘paid away’: If you have your interest paid away (for example to a current account) rather than added to the savings account, that interest won’t be compounded. This is particularly important where interest is sent to a current account, which generally don’t pay any or much interest.
- Fees or charges: Other providers may have charges, including when you withdraw, that reduce your overall return.
- Variable rates: Some accounts, including Spring’s Easy Saver and Easy Cash ISA, offer a variable AER. This means the rate can go up or down and can change the amount you earn over time.
- Tax on interest: You may be subject to pay tax on your savings interest depending on your circumstances.
AER FAQs: Your questions answered
So, what next?
AER is just a helpful way to see how your savings could grow over time. When you’re comparing accounts, it gives you a clearer view so you can make a more confident choice.
Think of AER as a starting point — it helps you cut through the noise so you can find a savings account that works best for you. If you’d like to learn more about saving, you can explore our Spring savings guides.
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*AER stands for Annual Equivalent Rate and this shows what the interest rate would be if interest was paid and added once each year.
