The short version
AER is for savings: the interest you would earn in a year once adding interest to the pot is counted. APR is for borrowing: the yearly cost of a loan, including some fees. Both turn different deals into one comparable yearly figure. This builds on interest.
I always assumed APR and AER were the same thing with different letters.
They are not. One is the yearly cost, the other the yearly reward.
A savings rate and a loan rate can use different tricks.
Two yearly figures
AER
What an account pays in a year once interest is added to the balance as it goes.
APR
The yearly cost of a loan, including interest and some compulsory charges, so deals can be compared.
Why AER can be higher than the quoted rate
Some accounts quote a rate such as 12% a year but add the interest every month. Each month's interest is then earned on the one before it.
One per cent a month, added twelve times, grows a pot by about 12.68%, not 12%. That 12.68% is the AER. The account has not changed; AER states the whole-year result so that a monthly account can be compared with an annual one.
Why APR can be higher than the interest rate
A loan may have a fee for setting it up, or compulsory charges. The interest rate leaves them out. The APR includes them, so it is usually higher than the interest rate alone.
APR also takes account of how often you pay and how long the loan lasts. It is a yearly cost figure, not a promise of what you will pay.
The APR is the interest rate on the loan.
The APR includes some fees as well as interest, so it is usually higher than the plain interest rate.
Using them to compare
Use AER to compare savings accounts, and APR to compare loans and cards. Do not compare an AER with an APR: one measures a reward and the other a cost.
On advertised credit, the figure shown is often a representative APR. At least half of the people who get the product must be offered that rate or a better one, so you may be offered a higher one.
Note: this explains how it works in general. It is not advice for your situation. For a decision about your money, check an official source or ask a qualified professional. Figures are for the UK.
Sources: Financial Conduct Authority, representative APR; MoneyHelper, guide to AER and APR.
Key takeaways
- AER is for savings, APR for borrowing.
- AER counts interest being added during the year.
- APR includes some fees as well as interest.
- Compare AER with AER and APR with APR.
Now you know.
AER is the reward.
APR is the cost.
Both state a whole year.
Last reviewed 3 Nov 2026
