The AER is sometimes confused with the gross rate. The gross interest rate, or gross rate, shows the actual or ‘effective’ annual rate of interest on a savings account over each year. Although the gross rate may sound similar to the AER, the gross rate reflects the contractual rate, meaning that it takes into account any contractual terms and conditions that could affect the rate of interest you could earn in a year, including any compounding.
The gross rate may be higher or lower than the AER, but the AER makes it easier to compare savings accounts.
You may also see the terms ‘simple gross rate‘ or ‘gross simple‘. These terms mean that the interest rate doesn’t include compounding.
For more information, please visit our Banking guide.