AER and gross interest both tell you how much interest you can earn, but they work differently.
AER considers compound interest (interest on interest), while gross interest doesn’t. That makes AER a better estimate of what you'll actually earn over time.
When interest is applied to savings annually, the AER and gross interest rate will be the same because there's no opportunity for interest to compound. When interest is paid more frequently (such as monthly), the AER will be higher than the gross rate because of the effect of compounding interest.
For a thorough explanation of how interest rates work, take a look at our Interest Rates explainer.
