The Difference Between AER and APR Interest Rate

Types of interest rates for consumers (both with APRs and AERs)

• Fixed Rate: The rate stays the same for an agreed period.
• Variable Rate: The rate can go up or down at any time.
• Standard Variable Rate (SVR): A variable rate set by the lender, often higher than their other products.
• Tracker Rate Mortgage: A variable rate that "tracks" and moves in line with another rate, such as the Bank of England Base Rate.
• Discounted Rate Mortgage: A variable rate mortgage that offers a temporary discount off the SVR.

Difference Between AER and APR:

AER (Annual Equivalent Rate) and APR (Annual Percentage Rate) are both interest rates expressed as a percentage over a year, but they are used for different financial products.

AER (Annual Equivalent Rate) Applies to: Savings Accounts and Investments. 

• AER is for savings accounts and reflects the interest you will earn, including the effect of compound interest over 1 year.
• It offers you a simple way to compare different deals from different banks and building societies depending upon whether they add interest daily, monthly, or annually.

APR (Annual Percentage Rate) Applies to: Borrowing like Loans, Mortgages, and Credit Cards. 

• APR is for borrowing/debt and represents the total annual cost of borrowing, including interest and other fees like account fees and application fees. . 
• Again, it offers you a simple way to compare different deals from different banks and building societies depending upon whether they charge interest daily, monthly, or annually and whether they offset your debt payments against the loan and future interest charges daily, monthly, or annually.
• There is also a term used such as “Representative APR", which is the rate that at least 51% of successful applicants will receive, but the actual APR you are offered may be based upon your own credit history, deposit, loan to value etc.

Other Interest Rate Measurements

• Base Rate: The UK's central bank (Bank of England) sets this rate, which influences the rates banks offer consumers and businesses.
• Bond Yield: This usually applies to government borrowing, known as ‘Gilts’ in the UK and government/sovereign Bonds around the World as is the ‘interest paid’ (the coupon) and measured as a % of the value of the bond.  A government coupon (i.e.  interest rate paid may be 5% pa yield, but if you pay more or less on the open market when trading in bonds yourself (or you fund manager does in your investment fund), your own ‘yield’ may be different to the published bond yield. 
• Corporate Bond Yield:  There are also corporate bonds (large company loan stocks) that operate in a similar way to government bond/gilts.

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