What is the Annual Equivalent Rate (AER)?

What is the Annual Equivalent Rate (AER)?

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The Annual Equivalent Rate, or AER, is the effect or the true effect of interest at the end of the year, including any regular savings that are put in. The AER is used to equalize rates, and usually, to avoid any tricks by institutions. For example, somebody might give you a high rate of interest for a few months to attract you to an account but then drop the rate thereafter. If all you saw was the initial high rate, you might be misled. The AER takes into account the initial high rate and the subsequent lower rate and averages it out so that you can compare the rates across institutions and accounts.