What is interest?
Interest is the money we pay you for keeping your savings with us.
It’s calculated as a percentage of your balance. The more you save, and the longer you leave your savings in your account, the more interest you’ll earn.
When interest is paid depends on the terms of the account - it could be paid monthly, annually, or when an account matures (for fixed term accounts).
AER and gross interest
Some accounts give you the choice of getting your interest paid monthly or annually - you might have noticed the monthly and annual options have different gross interest rates.
What is AER?
AER stands for Annual Equivalent Rate.
It shows what the interest rate would be if interest was paid once a year and added to your account. When you see a product advertised with a rate, it's normally shown as the AER.
Unlike gross interest, AER takes compounding into account - that's the interest you earn on interest.
You can compare savings products by looking at the AER, even if they pay interest in different ways.
What is gross interest?
Gross interest is the amount of interest you earn on savings each year as a percentage.
It doesn't take compounding into account - that's why monthly gross rates are usually a little but lower than annual gross rates.
Here's an example
Let's say you open an account with a 3% AER and pay in £1,000. Let's see what would happen if you chose monthly or annual interest.
- The monthly option shows a slightly lower gross rate (2.96%), because interest is added every month and compounds during the year.
- The annual option pays interest once at the end of the year, so the gross rate is the same as the AER (3.00%).
- In both cases, the AER is 3.00%, so after one year, your £1,000 becomes £1,030.
| Month | Monthly interest account (2.96% gross, paid monthly) |
Annual interest account (3.00% gross, paid annually) |
|---|---|---|
| Start | £1,000.00 | £1,000.00 |
| 1 | £1,002.47 | £1,000.00 |
| 2 | £1,004.95 | £1,000.00 |
| 3 | £1,007.43 | £1,000.00 |
| 4 | £1,009.92 | £1,000.00 |
| 5 | £1,012.41 | £1,000.00 |
| 6 | £1,014.91 | £1,000.00 |
| 7 | £1,017.41 | £1,000.00 |
| 8 | £1,019.93 | £1,000.00 |
| 9 | £1,022.84 | £1,000.00 |
| 10 | £1,024.97 | £1,000.00 |
| 11 | £1,027.49 | £1,000.00 |
| 12 | £1,030.00 | £1,030.00 |
Common questions
The rate shown on our website is the AER. This shows what you'd earn over a full year once the effect of compund interest is included.
When you log in to your account, you'll see the gross rate - which is the basic interest rate before compounding.
It depends on what you want.
Monthly interest could be an option if you’d like to support your monthly income.
Annual interest may suit you if you’re saving for the longer term and want interest added once a year.
Both options use the same AER.