Explore commonly used personal finance terms.
The Annual Effective Rate (AER) represents the actual annual interest rate after factoring in the effects of compounding over the year. Unlike nominal rates, AER provides a more accurate picture of the real return or cost of an investment or loan, making it valuable for comparing financial products. A higher AER means more interest earned or paid due to compounding. AER is commonly used for savings accounts, investments, and loans to help individuals understand the actual growth or cost over a full year.
