APY, AER and APR: how interest rates are quoted in the US and UK

Interest rates on savings and loans are quoted in several ways, and one account can show two numbers side by side. This guide explains what each figure measures, how compounding, fees and tax move them, and how to compare rates in the US and the UK without mixing one kind of number with another.

The figures at a glance

The rest of this guide takes each in turn, then covers what a headline rate can leave out and how tax changes what is kept.

Savings in the US: APY

The US rules for deposit accounts are in Regulation DD, which implements the Truth in Savings Act. It defines APY as "a percentage rate reflecting the total amount of interest paid on an account, based on the interest rate and the frequency of compounding for a 365-day period" (Regulation DD, 12 CFR 1030.2). The interest rate, by contrast, is "the annual rate of interest paid on an account which does not reflect compounding."

The rule for adverts is strict. If a US advert states a rate of return, it must be the APY, with the full term "annual percentage yield" used at least once. The interest rate may appear alongside it, "but not more conspicuously than" the APY (Regulation DD, 12 CFR 1030.8). That is why US bank pages lead with the APY.

One source of confusion: on account disclosures, the same definition lets the interest rate also be called the "annual percentage rate". An APR on a US savings disclosure is therefore the rate without compounding, not a borrowing cost.

How the APY is worked out

Appendix A of Regulation DD works from the interest an account actually pays. For a full 365-day year the formula reduces to interest divided by principal. The appendix's own example: $61.68 of interest on $1,000 over a year is an APY of 6.17%.

For shorter terms the formula annualises the result. The appendix's six-month CD pays $30.37 on $1,000 over 182 days, which works out to an APY of 6.18%. Annualising is what lets a six-month CD and a one-year CD be compared on one scale.

Savings in the UK: AER and gross rate

UK savings accounts usually show two figures. The AER is the yearly return including compounding, in the same way as the APY. The gross rate is the contractual rate before compounding and before any tax, which matches the US interest rate.

When interest is paid once a year, the two are the same. When it is paid monthly, the AER is a little higher, because each month's interest earns interest for the rest of the year.

The arithmetic for Zopa: 2.91% a year paid monthly is 0.2425% a month. Compounded twelve times, (1 + 0.002425)^12 − 1 comes to 2.95%.

How much compounding is worth

The same 3.00% interest rate gives a slightly different yearly return depending on how often interest is added to the balance:

Between yearly and daily compounding, the difference on 10,000 is about 4.50 a year. The difference between accounts is usually far larger. The FDIC's national rates page put the national average savings rate at 0.38% on 19 October 2026, while Ally Online Savings paid 3.20% APY on 28 October. On $10,000 that is roughly $38 a year against $320.

What a headline rate can leave out

An APY or AER assumes the same balance and the same rate for a whole year. Four things commonly break that assumption.

Tiers. CIT Platinum Savings pays 3.75% APY on balances of $5,000 or more and 0.25% below. On $4,900 that is about $12 a year; on $5,000 it is about $188.

First-year bonuses. Chase Saver quotes 4.5% AER for new customers, made up of a 2.25% standard rate and a 2.25% boost fixed for 12 months. On £10,000 that is roughly £450 in the first year and £225 in the second, if the standard rate stays where it is.

Withdrawal limits. Zopa's Limited Access pot allows three withdrawals a year. A fourth drops the rate to 2.00% AER.

Variable rates and dates. Most easy-access rates are variable. CIT's page dates its rate 1 July 2026; Ally's is dated 28 October 2026. Two rates set months apart say little about which account pays more today.

Tax changes the rate that is kept

Neither APY nor AER allows for tax.

US. The IRS treats most interest "credited to an account that you can withdraw from without penalty" as taxable income in the year it becomes available. Banks issue Form 1099-INT for interest of $10 or more, and all taxable interest must be reported even when no form arrives (IRS Topic 403).

UK. The Personal Savings Allowance lets basic-rate taxpayers earn £1,000 of interest a year without tax, higher-rate taxpayers £500 and additional-rate taxpayers nothing. People whose other taxable income is under £17,570 may also get the starting rate for savings, which covers up to £5,000 of interest. Interest in a cash ISA is tax-free, within the £20,000 yearly ISA allowance.

A worked example for 2026–27, at the Income Tax rates for England, Wales and Northern Ireland (Scotland's bands differ):

The same £20,000 in a cash ISA at 3.00% AER keeps the full £600 in every band, which is why ISA rates and taxable rates are compared after tax.

Borrowing: APR

For loans and credit, the figure to compare is the APR. The CFPB describes it as "the interest rate plus any additional fees charged by the lender", and advises comparing "APRs to APRs and not APRs to interest rates" (CFPB on interest rate and APR).

A credit-builder loan shows the gap between the two. CreditStrong discloses an interest rate of 14.79% and an APR of 15.61% on its Instal plan: $28 a month for 48 months plus a $15 activation fee. The finance charge is $349 and the total of payments $1,359. The fee is why the APR sits above the interest rate.

How a card APR becomes interest

US card issuers do not charge the APR once a year. The CFPB explains that the daily periodic rate "generally can be calculated by dividing the annual percentage rate, or APR, by either 360 or 365, depending on the card issuer", and that it is applied to the amount owed at the end of each day (CFPB on daily periodic rates).

As an illustration, a $1,000 balance carried through a 30-day cycle at a 24% APR:

The 24% is chosen for round numbers, not taken from a card. The point is that the same APR can produce slightly different interest depending on the issuer's method, which the cardholder agreement states.

Comparing savings rates with loan rates

An APY and an APR are built differently. One counts compounding on money held; the other counts fees on money owed. A 3.20% APY next to a 15.61% APR shows the loan costs more than the savings earn, but the useful comparison is in money: the yearly interest earned on the savings balance against the yearly cost of the debt, including fees.

A checklist for comparing rates

1. Match each figure to its kind: APY with APY, AER with AER, APR with APR.
2. Check the date each rate was set or read.
3. Read the conditions: minimum balance, tiers, withdrawal limits, and how much of the rate is a bonus.
4. Work out the money, not only the percentage: balance times rate for a year, then the second year at the rate after any bonus ends.
5. For savings, apply the tax position that fits; for loans, read the total repayable beside the APR.

Where to go next

The US savings comparison and the UK easy-access comparison rank accounts on published rates, each with the date it was read. The savings interest calculator works out interest for any balance and term, including first-year bonuses.