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What does per annum mean?
A quick summary
Per annum means each year. It's often used to describe the intervals between interest payments. Other ways to say this might be annually, yearly, or over 12 months.
When might per annum apply?
Per annum describes things like the:
- annual cost of renting a property
- amount you earn from a salary or wages each year
- rate of interest you’ll pay each year on a mortgage, credit card or loan
- rate of interest you’ll receive each year on a savings balance.
Earning interest on savings
As a very simple example, imagine you have £1,000 in a savings account offering interest at 3% per annum. After one year, you could expect to receive interest of £30.
Interest is calculated daily and can be paid to you monthly or annually.
To estimate the monthly amount, divide the annual interest by 12. For example, if the annual interest is £30, it would be approximately £2.50 per month.
When browsing for savings accounts, look out for the AER, or Annual Equivalent Rate. This should help you to compare accounts and understand the potential gains more clearly. That’s because AER accounts for the effect of compound interest, where you can earn interest on interest you’ve already earned.
Paying tax on interest earned
The government set limits on what you can earn before tax is payable. These limits and rules change over time. Taxable income could include interest from savings accounts, or dividends from investments. Interest earned through an ISA is usually tax-free.
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