- APR measures borrowing cost; AER measures savings return — different calculations
- APR usually includes mandatory fees; AER reflects compounding over a year
- The advertised representative APR isn't guaranteed for every applicant
- Never assume a similar-looking APR and AER represent an equivalent deal
APR — the cost of borrowing
Annual Percentage Rate includes the interest rate plus most mandatory fees, expressed as a yearly cost, so you can compare loans or cards on a like-for-like basis.
AER — the return on saving
Annual Equivalent Rate shows what a savings rate would be worth over a full year if interest compounded, letting you compare accounts that pay interest monthly against ones that pay annually.
Representative APR isn't guaranteed
Only 51% of accepted applicants have to be given the advertised representative APR for personal credit — your actual rate depends on your credit profile.
Why the two aren't opposites
A savings AER of 4.5% and a credit card APR of 4.5% are not equivalent products — the credit card almost certainly has a far higher effective cost once fees and compounding are accounted for.
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