What is AER (Annual Equivalent Rate)?
The interest rate you'd earn over a full year, accounting for compounding. It's the standard way UK banks express savings rates so you can compare like for like. A regular saver advertising 7% AER doesn't mean you earn 7% on all your deposits — because your balance builds monthly, the effective return is roughly half.
AER shows what a savings account pays over a full year once compounding is included. An account that pays interest monthly earns slightly more than the same gross rate paid annually, because each month's interest itself starts earning interest. AER folds that effect into a single number, so a 4.9% AER account and a 5.0% AER account can be compared directly regardless of how often each one pays out. UK advertising rules require savings providers to quote AER, which is why it appears on every account listing.
AER is not the same as the gross rate. Gross is the flat contractual rate before compounding; AER is the annualised result after it. On accounts that pay interest once a year the two are identical, while on monthly-interest accounts the AER is a touch higher than the gross rate.
The number is most often misread on regular savers. A 7% AER regular saver pays 7% on each pound only for the time that pound is in the account. Because deposits go in month by month, the average balance over the year is roughly half the total deposited — so the interest earned is roughly half what the headline suggests. That isn't a trick; it's simply how time-weighted interest works.