What does AER stand for in relation to deposit products?

• A. The gross deposit return, expressed as the equivalent annual rate of interest payable at the end of the year.
• B. The annual rate of return provided by the deposit, for a typical average deposit size, after deposit interest retention tax (DIRT).
• C. The impact of deposit charges and fees, expressed as an annual reduction in yield over the deposit term.
• D. The average gross return offered by a selection of deposit takers, for a given deposit amount.

Answer: (A)

AER stands for Annual Equivalent Rate. It’s a standard way to show how much interest a deposit would effectively earn over a year when interest is compounded, expressed as a single annual rate. It’s a gross figure, meaning it’s before tax and doesn’t deduct charges or fees. AER is designed to allow apples-to-apples comparison between accounts with different compounding frequencies because it reflects the annualized growth of the deposit.

In this sense, the description that fits best says it’s the gross deposit return expressed as the equivalent annual rate of interest payable at the end of the year. It’s not adjusted for tax (DIRT) or for charges and fees, and it isn’t an average across providers.