What is "Annual equivalent rate (AER)" meaning?

Annual equivalent rate (AER) is a standardized way to show how much interest a savings account or investment will earn in one year, assuming the interest is compounded. It helps consumers compare different savings products by giving a consistent measure of potential returns.

Example

“If you’re comparing savings accounts, always look at the AER—it gives you the clearest picture of how much you’ll actually earn in a year.”

How is "Annual equivalent rate (AER)" used in business?

In business, especially in banking and finance, AER is used to present interest earnings in a uniform way. It allows individuals and companies to evaluate the profitability of savings or investment products on a like-for-like basis, regardless of how often interest is paid.

Pro Tip

Don't confuse AER with APR. AER is used for savings and investments, while APR refers to borrowing costs. Always check how often interest compounds.

Related Terms

Compound Interest, Savings Rate, Interest Yield, Annual Percentage Rate (APR)