AER Calculator (UK)
Use this calculator to convert a gross annual rate into AER and estimate how your savings could grow over time.
If you have ever compared savings accounts in the UK, you have probably seen the term AER. It looks technical, but it is actually your best friend when comparing rates. This guide explains what AER means, why it matters, and how to use the calculator above to make better savings decisions.
What is AER?
AER stands for Annual Equivalent Rate. In plain English, it is the interest rate you would earn in one year after compounding is taken into account.
Compounding means you earn interest on your original savings and on previously earned interest. Because banks can pay interest monthly, quarterly, or yearly, AER gives everyone a standard yearly figure so products are easier to compare.
AER vs Gross Rate (UK savings)
You will often see two rates:
- Gross rate: the simple annual rate before compounding frequency is applied.
- AER: the effective annual rate after compounding.
Two accounts can advertise the same gross rate but different compounding schedules. The one that compounds more often will usually have a slightly higher AER.
Why this matters
- AER lets you compare like-for-like across banks and building societies.
- It helps you estimate realistic growth over a full year.
- It reduces confusion when one product pays monthly interest and another pays annually.
How AER is calculated
The standard formula is:
Where:
- r = gross annual rate as a decimal (e.g., 5% = 0.05)
- n = number of times interest is compounded each year
Example: If the gross rate is 5.00% and interest is compounded monthly (n = 12), AER is slightly above 5.00% because you get interest on interest during the year.
How to use the AER calculator above
Step 1: Enter your starting balance
This is how much money you already have in your account today.
Step 2: Add monthly contribution
Include how much you plan to save each month. If you are not adding anything, enter 0.
Step 3: Enter gross annual rate and compounding frequency
Select the frequency that matches the account terms. If unsure, check the savings product information page.
Step 4: Enter the term in years
The calculator estimates your final balance at the end of that period using monthly contribution assumptions.
Step 5: Review outputs
- AER: effective annual rate after compounding
- Equivalent monthly rate: useful for planning monthly growth
- Estimated final balance: projected account value
- Total paid in: your own contributions
- Interest earned: growth generated by your money
Practical UK tips when comparing savings accounts
1) Check if the rate is fixed or variable
A fixed-rate bond can offer certainty, while easy-access variable rates can move up or down. AER still helps comparison, but future returns may differ if rates change.
2) Look for introductory bonuses
Some accounts show an attractive headline AER that includes a temporary bonus. Always check what happens after the bonus expires.
3) Watch account restrictions
- Minimum monthly deposit requirements
- Withdrawal limits
- Maximum balance caps
4) Consider tax and wrappers
Cash ISAs can protect interest from tax, while non-ISA savings may be covered by your Personal Savings Allowance depending on your tax band.
5) Check FSCS protection
In the UK, eligible deposits are typically protected up to FSCS limits per person, per authorised institution. Spread large balances if needed.
Common mistakes people make
- Comparing gross rates without checking AER.
- Ignoring withdrawal rules and lock-in periods.
- Forgetting that variable rates can change.
- Assuming all interest is paid monthly when some products pay annually.
- Not accounting for regular contributions in projections.
Quick FAQ
Is a higher AER always better?
Usually yes for pure return, but you should also consider access, risk, limits, and whether the rate is fixed or variable.
Can AER be lower than the gross rate?
For standard positive rates with compounding, AER is usually equal to or slightly higher than gross. If paid annually once, they may be very close or the same.
Does this calculator include inflation?
No. It projects nominal growth. Your real purchasing power depends on future inflation.
Bottom line
If you save in the UK, AER is the clearest way to compare accounts fairly. Use the calculator to translate gross rates into meaningful annual returns and to estimate how regular monthly saving can accelerate growth over time.