In relation to Annual Equivalent Rate (AER) and Compound Annual Return (CAR) for deposit accounts, which statement is true?

• A. AER and CAR are exactly the same thing.
• B. AER is calculated before DIRT whereas CAR is calculated after DIRT.
• C. CAR is calculated before DIRT whereas AER is calculated after DIRT.
• D. AER allows for charges and deductions whereas CAR doesn't.

Answer: (A)

The important idea here is that AER and CAR describe the same thing for a deposit account: the annualized return you effectively get when interest is compounded. When a savings product quotes an annual rate, both terms are just different names for the same calculation of how much you’d earn over a year if you leave the interest to compound. In this context, they’re shown on a gross basis and before any tax or charges, so they end up the same number.

That’s why the statement is true: for deposit accounts, AER and CAR reflect the same compounding effect and are essentially interchangeable measures of the yearly return, ignoring tax and fees. The other options imply differences due to tax or deductions in how the rate is calculated, which isn’t how these figures are typically presented for comparison.