What is an...

Annual Equivalent Rate

An Annual Equivalent Rate (AER) is the rate of interest you’ll earn from investing savings, presented to make it easier to compare accounts. Unlike APR, it has no basis in law.

Any interest rate quoted as an Annual Equivalent Rate will only be applicable if you do not withdraw money from your account during the year in question as it illustrates what the interest would be if it was paid and compounded (added to the interest from previous payouts). As such, any withdrawals that you make from the account can affect the amount you will receive at the end of the year.

The AER quoted is often the gross figure – meaning the amount calculated before tax is deducted. By law lenders have to collect tax on the interest earned – known as withholding interest – so the actual amount you receive will be the AER minus the basic rate of taxation. For higher rate taxpayers, the tax may have to be paid directly.

Should my savings appear on my Credit Report?

Your Credit Report is a record of your credit agreements – in other words, the balances you owe – so any savings accounts, their balances, and the AER will not appear on your Credit Report.

While your savings and income may influence your affordability, lenders will establish your creditworthiness by checking your Credit Report as part of any credit application.

If you haven’t already, you can check your Multi Agency Credit Report with checkmyfile. Free for 30 days, then just £14.99 per month. Cancel online anytime.

Can my Annual Equivalent Rate change?

Banks often have the ability to vary interest rates without notice, so unless the Annual Equivalent Rate is quoted fixed for a specified period, the amount you receive may differ, either more or less, depending on how rates have moved.

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