According to a definition on Wikipedia, “The effective interest rate, effective annual interest rate, annual equivalent rate or simply effective rate is the interest rate on a loan or financial product restated from the nominal interest rate and expressed as the equivalent interest rate if compound interest was payable annually in arrears.”
Simply speaking we can say that, Annual Equivalent Rate or AER is the real or actual interest rate that an investor would manifest at the end of the year for his shares and bonds or loans. It could also be noted that the AER will be higher than the stated interest rate.