Annual equivalent rate
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Annual equivalent rate (AER) is a notional interest rate that is quoted on the interest paid on savings and investments.
The AER can be used to demonstrate what your return would be if the interest was compounded and paid annually instead of, say, monthly.
Suppose an account pays interest more than once a year. The AER is calculated by adding each interest payment to the original deposit and then calculating the next interest payment, compounding the interest.
On accounts where interest is paid quarterly, the AER will be a bit higher than the quoted gross rate because it allows for the interest paid on the interest. All advertisements for interest-bearing savings accounts regulated in the United Kingdom quote AER, so you can compare returns. AER normally excludes any bonus interest that may be payable.
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