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What is Annual Equivalent Rate?
AER stands for annual equivalent rate. It shows you the total interest you’d earn over a year.
It’s designed to make comparing savings rates simple, as every provider calculates it in the same way.
AER also includes the effect of compound interest. That means you earn interest on your interest. For example, with a 6 month fixed term, it assumes interest is added after 6 months, and then earns interest again for the rest of the year.
That’s why the AER is usually higher than the gross rate.
It’s designed to make comparing savings rates simple, as every provider calculates it in the same way.
AER also includes the effect of compound interest. That means you earn interest on your interest. For example, with a 6 month fixed term, it assumes interest is added after 6 months, and then earns interest again for the rest of the year.
That’s why the AER is usually higher than the gross rate.
