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Definition of 'Annual Equivalent Rate - AER'
Interest that is calculated under the assumption that any interest paid is combined with the original balance and the next interest payment will be based on the slightly higher account balance. Overall, this means that interest can be compounded several times in a year depending on the number of times that interest payments are made.
In the United Kingdom, the amount of interest received from savings accounts is listed in AER form.
Calculated as:
Where:
n = number of times a year that interest is paid
r = gross interest rate
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