Money tips · October 2026
APR vs AER: what’s the difference?
FLD is not a lender or a credit broker and does not arrange credit. This is general information, not advice to borrow.
Important: This guide gives general information, not financial advice. We don’t quote live rates.
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APR and AER look alike, but they answer different questions. To know which one to read, ask yourself one thing: am I borrowing or saving?
Quick answer
- APR stands for annual percentage rate. It shows the yearly cost of borrowing, including interest and certain compulsory fees.
- AER stands for annual equivalent rate. It shows what savings would earn in a year if interest were paid and added once a year.
- You can’t compare an APR with an AER directly. They measure different things.
APR and AER side by side
| APR | AER | |
|---|---|---|
| Stands for | Annual percentage rate | Annual equivalent rate |
| Used for | Borrowing | Saving |
| Where you’ll see it | Credit cards, personal loans, car finance, overdraft adverts | Savings accounts, cash ISAs, fixed-rate and notice accounts |
| What it includes | Interest plus certain compulsory fees, but not late-payment charges | Interest, shown as if paid and added once a year |
| How to read it | Lower is usually cheaper | Higher usually earns more |
| Watch out for | The advertised rate is a representative APR, and you may be offered more | Bonus rates that end, and access rules |
| What it doesn’t tell you | Optional extras, late fees or how long you’ll take to repay | Withdrawal limits, notice periods or tax |
| Our deeper guide | APR explained | AER explained |
Checked 5 October 2026.
APR: the cost of borrowing
APR turns the cost of credit into one yearly figure, so you can compare offers with different fees. It leaves out charges for missing payments.
Adverts usually show a representative APR. At least 51% of people accepted through that advert get that rate or lower, so you may be offered a higher one (source: FCA). Our guide to APR explained covers this in more detail.
AER: what savings earn
AER lets you compare savings accounts that pay interest at different times, such as monthly or yearly. It shows the rate as if interest were paid and added once a year, and doesn’t include conditional bonuses unless the advert says so (for example, “AER including bonus”).
You’ll often see a gross rate, meaning before tax, next to the AER. If interest is paid once a year, the gross rate and the AER are the same.
Gross isn’t always what you keep.
For 2026/27, the Personal Savings Allowance lets basic-rate taxpayers earn up to £1,000 interest tax-free, and higher-rate taxpayers up to £500 (source: GOV.UK). Tax rates on savings interest rise by 2 percentage points from April 2027 (source: GOV.UK). Our guide to compound interest shows how interest builds up.
Other rate labels you might see
Overdrafts. Since April 2020, arranged overdrafts have been priced with a single annual interest rate, with no fixed daily or monthly fees. You may still see this called EAR.
Overdraft adverts must also show a representative APR. Our overdraft cost calculator shows how costs can add up.
Mortgages. Mortgage offers show the APRC, the annual percentage rate of charge. It includes interest and fees over the full term, so it isn’t your starting rate. See our guide to mortgage types.
Borrowing or using savings?
If you’re choosing between borrowing and dipping into savings, comparing the APR with the AER won’t give a fair answer. Compare the pounds instead: the interest you’d pay on the borrowing against the interest you’d lose on the savings, after any tax. Our guide on whether to pay off debt or save walks through this.
If you’re struggling with borrowing costs, MoneyHelper, StepChange, National Debtline and Citizens Advice offer free, confidential debt advice.
Key takeaways
- APR is what you pay to borrow. AER is what you could earn on savings.
- Match the label to the product before you compare.
- Check fees, bonus end dates, access rules and tax alongside either figure.
FAQ
Does APR mean the same as a loan’s interest rate?
No. The interest rate is the charge on what you borrow. APR also includes certain compulsory fees, shown as a yearly figure, so offers with different fees are easier to compare.
Why does a savings advert show both a gross rate and an AER?
It depends on how often interest is paid. If it’s paid once a year, they’re the same. If it’s paid more often, the AER shows the yearly equivalent. Gross means before tax, which isn’t always what you keep.
Should I worry about a card’s APR if I never carry a balance?
Not usually. If you pay the full balance on time each month, you normally won’t pay interest on purchases. Balance transfers and cash withdrawals can be charged differently, so check your terms.
Will the account with the highest AER always pay me the most?
Not always. A high AER may include a bonus that ends, or come with withdrawal limits. Tax can also reduce what you keep, depending on your circumstances.
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