What is Gross Rate?

Category: Savings

Gross rate, along with AER (or Annual Equivalent Rate) is the interest rate you're most likely to see displayed when comparing savings accounts or cash ISAs.

But what exactly is gross rate, and how useful is it as a method of comparison?

What is a gross rate ?

A gross rate is the rate of interest that you would earn at the outset of taking out a savings account. It's useful as a rough guide, but be aware of the following:

• A Gross rate doesn't take tax into account, so you shouldn't compare the Gross rate of a non-ISA savings account with a Cash ISA.
• It doesn't take into account the effects of compound interest on your savings balance(where you earn interest not only on your initial investment, but also on any interest you've previously accumulated).
• If there's an introductory bonus on the account that's less than 12 months, a better method of comparison would be to use the AER as this will show a truer reflection of the interest you'd be likely to earn over a year (it would be lower as an AER takes into account the period after the bonus drops off).
• Gross rate is not a good method of comparison if you are comparing an account that pays interest monthly, against an account that pays it annually.

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Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.