AER (Annual Equivalent Rate)
Co-Founder•1 min read
The Annual Equivalent Rate shows the true yearly return on savings or investments, including the effect of compounding interest. It standardises how interest is calculated so that different savings accounts can be compared fairly.
In simple terms, AER tells you how much interest you’d earn in one year if the rate stayed the same and the interest was added to your balance (compounded).
Example:
A savings account paying 1% interest monthly will have an AER slightly above 12% × 1% = 12%, because each month’s interest earns interest in later months.
Used in:
Savings accounts, ISAs, and other deposit-based products.