APR and AER are two of the most common acronyms in UK personal finance, and they're frequently confused — understandably, since they look and sound so similar. But they measure fundamentally opposite things: one is about what borrowing costs you, the other about what saving earns you.

APR: Annual Percentage Rate — the cost of borrowing

APR represents the total annual cost of borrowing, expressed as a single percentage, including interest and most mandatory fees. It's used for loans, mortgages, credit cards and other forms of credit, and is designed to let you compare the true cost of different borrowing products on a like-for-like basis, rather than being misled by a low headline interest rate that hides significant fees.

Remember: APR is what borrowing costs you. A lower APR is better when you're the one borrowing money.

AER: Annual Equivalent Rate — the return on saving

AER represents the annual return you'd earn on a savings account, standardised to reflect what you'd receive if interest were paid and compounded once a year — making it possible to fairly compare accounts that actually pay interest monthly, quarterly, or with other different frequencies. It's used for savings accounts, cash ISAs, and other interest-bearing deposit products.

Remember: AER is what saving earns you. A higher AER is better when you're the one saving money.

Why they're often confused

Both are standardised, regulated ways of expressing an annual percentage rate for financial products, both appear prominently in advertising, and both are designed for the same underlying purpose — enabling fair comparison between products. The confusion mostly comes down to remembering which one applies to borrowing and which to saving.

A simple way to remember which is which

  • APR → think "Amount Paid" when you borrow
  • AER → think "Amount Earned" on your savings

Why offsetting connects the two directly

Understanding both terms together matters most clearly when you're deciding between paying off debt and saving, or considering an offset mortgage. If your mortgage APR is meaningfully higher than the AER available on your savings, you're generally losing money overall by holding both simultaneously (paying more in mortgage interest than you're earning in savings interest) — though tax treatment, liquidity needs, and personal risk tolerance can all still make holding some savings the right choice.

Representative APR: an important nuance

Advertised APRs are usually "representative," meaning at least 51% of successful applicants receive that rate or better — your own personal APR could be higher (or lower) depending on your individual credit assessment. Always check the actual rate offered to you specifically before agreeing to any credit product, rather than assuming the advertised figure applies.

For more on this, see our guide on A-Z Glossary of UK Finance Terms.

Our free True Cost of Borrowing Calculator can help you check this against your own figures.

The bottom line

APR and AER are both standardised, comparable percentage rates — but APR tells you what borrowing costs, while AER tells you what saving earns. Keeping the simple mnemonic in mind ("Amount Paid" vs "Amount Earned") makes it easy to read any financial advert correctly and compare products fairly.

This article is for general information only and does not constitute financial, legal or tax advice. Rates, thresholds and eligibility criteria change over time — always check current terms with the lender or an FCA-regulated adviser before making a decision. See our full terms and disclaimer.