For a deposit account, which statement about AER and CAR in relation to DIRT is true?

• A. AER is calculated before DIRT whereas CAR is calculated after DIRT.
• B. AER is calculated after DIRT, CAR before DIRT.
• C. Both are calculated before DIRT.
• D. Both are calculated after DIRT.

Answer: (A)

In a deposit account, AER represents the gross annual rate you would earn, shown before any tax is taken off. DIRT is a tax on the interest you earn, so the actual cash you receive is reduced after tax. The rate you effectively keep after tax is the net or post-tax rate, which is what CAR represents in this context. Since tax is applied to the gross interest, AER is calculated before DIRT while CAR is calculated after DIRT. That’s why that statement is the best: it aligns with AER being a pre-tax figure and CAR reflecting the post-tax return. If you see a option claiming both are before tax, or both after tax, those don’t match how these rates are actually calculated.