APR, APY and AER explained with one example
Short answer
APR is the yearly rate on borrowing. APY in the US and AER in the UK show what savings earn over a year once interest is added to interest. The catch is that a US APR is a monthly or daily rate multiplied up with no compounding, while a UK APR includes compounding and fees, so the same 22% costs more on a US card.
A US credit card that charges 1.8333% interest a month has to call itself 22% APR, because US rules multiply the monthly rate by 12 and stop there. Leave US$2,000 on it for a year, with interest added monthly, and you’d owe $487.19 in interest. On a UK card at 22% APR, the same £2,000 costs £440.
On savings, the US uses APY and the UK uses AER. Both show what an account earns in a year once interest is added to interest, so 4% credited monthly is 4.07% either way. Scroll’s Debt lessons cover APR alongside the snowball and avalanche ways of paying debt off.
What each term means
| Term | Where | Describes | Includes compounding | Includes fees |
|---|---|---|---|---|
| APR | US | Cost of borrowing | No: the periodic rate times the number of periods in a year | Loans: finance charges such as loan fees and points. Cards: annual fees are left out |
| APR | UK | Cost of borrowing | Yes | Yes: interest, commissions, taxes and other required fees |
| APY | US | What savings earn | Yes | No, interest only |
| AER | UK | What savings earn | Yes | No, interest only |
In the US, APR comes from the Truth in Lending Act and its Regulation Z. For a credit card, the APR is each periodic rate multiplied by the number of periods in a year (§ 1026.14(b)); for a loan with set payments, it’s the rate per payment period times the number of periods (Appendix J). Neither compounds. Points and loan fees count as finance charges (§ 1026.4), so they raise a loan’s APR, but fees for taking part in a credit plan, such as a card’s annual fee, are excluded.
APY comes from the Truth in Savings Act and Regulation DD, which defines it as the rate that reflects all the interest an account pays over 365 days, given its interest rate and how often it compounds (§ 1030.2).
In the UK, the APR rules sit in the FCA’s consumer credit sourcebook. The APR is the yearly rate at which today’s value of everything you borrow equals today’s value of everything you repay, with time counted in years (CONC App 1.2.6R), so compounding is built in. It covers the total cost of credit: interest, commissions, taxes and any other fees the lender knows you’re required to pay (FCA glossary).
AER is the UK’s savings label. NS&I describes it as what the yearly rate would be if interest were compounded each time it’s paid, and its gross rate as the taxable rate before any UK income tax is taken off (NS&I).
The formula behind APY and AER
Both turn a yearly rate r, credited or charged n times a year, into what it comes to over a whole year:
(1 + r/n)n − 1
Regulation DD writes the same idea from the result backward: APY = 100 × ((1 + interest ÷ principal)365 ÷ days in term − 1), per its Appendix A. Over a one-year term that’s simply the interest divided by the deposit. Here is the first formula on a 4% savings rate and a 22% card rate:
| Compounding | n | 4% savings rate | 22% card rate |
|---|---|---|---|
| Yearly | 1 | 4.00% | 22.00% |
| Quarterly | 4 | 4.06% | 23.88% |
| Monthly | 12 | 4.07% | 24.36% |
| Daily | 365 | 4.08% | 24.60% |
Effective yearly rates worked out with the compound interest calculator’s formula, rounded to two decimal places.
More frequent compounding raises the yearly figure each time, but by less and less. Going from monthly to daily adds about 0.01 points at 4% and 0.24 points at 22%.
One savings account in all three terms
Put US$10,000 in an account that pays 4% a year, credited monthly. After 12 months it holds $10,407.42. A US bank shows that as a 4.07% APY ($407.42 ÷ $10,000), and on a US savings disclosure the 4.00% interest rate, which doesn’t reflect compounding, may also be called the annual percentage rate (§ 1030.2). A UK bank would show the same account as 4.00% gross and 4.07% AER.
When interest is paid once a year, the figures match. NS&I’s Direct Saver adds interest once a year, on 1 April, so its rate was 3.75% gross and 3.75% AER when we checked on 14 October 2026. Both APY and AER are worked out before any tax on the interest.
For comparison, the FDIC’s national rate for US savings accounts was 0.37% on 21 September 2026 (FDIC), or $37 a year on $10,000. In the UK, Bank Rate has been 3.75% since 18 December 2025 (Bank of England).
One card balance in all three terms
The Federal Reserve’s G.19 release of 7 October 2026 put the average rate on US card accounts that were charged interest at 22.15% in the second quarter of 2026, and it describes these rates as APRs under Regulation Z (Federal Reserve). Call it 22%. That’s 22% ÷ 12 = 1.8333% a month, or 22% ÷ 365 = 0.0603% a day on a card that charges a daily rate.
Leave $2,000 on the card for a year, with no payments and no new spending. Charged monthly, the balance grows to $2,487.19, an effective 24.36% (the APY formula with n = 12). Charged daily, it’s $2,491.99, or 24.60%. Scroll’s lesson How credit card interest actually compounds says daily compounding turns a 22% APR into about 24.6%; we checked it, and (1 + 0.22/365)365 − 1 is 24.60%.
A UK lender charging that 1.8333% a month would have to show 24.4% APR (the FCA requires at least one decimal place), and more if the card had a fee. A UK card that does advertise 22% APR, with no fees, charges 1.6709% a month (1.221/12 − 1). Leave £2,000 on it for a year and the interest is exactly £440.
| $2,000 or £2,000 left for a year | Rate charged | Effective yearly rate | Interest |
|---|---|---|---|
| US card, 22% APR, charged monthly | 1.8333% a month | 24.36% | $487.19 |
| US card, 22% APR, charged daily | 0.0603% a day | 24.60% | $491.99 |
| UK card, 22% APR, no fees | 1.6709% a month | 22.00% | £440.00 |
| UK card charging 1.8333% a month | 1.8333% a month | 24.36% (shown as 24.4% APR) | £487.19 |
No payments and no new spending for 12 months. US rows follow Regulation Z (APR = periodic rate × periods), and UK rows follow the FCA’s APR formula, which compounds.
Comparing rates from your own lenders
Compare like with like. Two UK cards can be compared on APR alone, and two US cards on APR with any annual fee checked separately. A US APR and a UK APR measure different things, so turn the US one into an effective rate before putting them side by side. For savings, compare APY with APY in the US and AER with AER in the UK.
When a UK advert quotes a representative APR, the lender only has to expect that at least 51% of the agreements from the advert will be at that rate or lower (FCA glossary), so up to 49% of borrowers can be offered more.
Whether to clear a card before building savings is a separate question, worked through in the guide on whether to pay off debt or save first.
Drafted with AI assistance. Every figure was checked against the sources listed, on 14 October 2026.