The Annual Equivalent Rate (AER) is a percentage figure used to help you compare savings accounts and is based on the assumption that you keep your savings in the same account for 12 months. The AER is designed to give you a more accurate picture when comparing interest rates side-by-side.
It is used as an alternative to the Gross rate, which is basically a flat annual interest rate.
Unlike the gross rate, the AER rate factors in the interest you earn each month i.e. the compound interest. This is because if your savings account earns monthly interest, then the following month you will earn interest on your savings plus the interest that was previously accrued. If your savings account only pays interest annually, then the AER and Gross rate should effectively be the same.
Both the AER and Gross rates show the interest earned before any possible tax deductions.