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
INVESTOPEDIA EXPLAINS 'Annual Equivalent Rate  AER'
For example, a savings account with a quoted interest rate of 10% that pays interest quarterly would have an annual equivalent rate of 10.38%. Investors should be aware that the annual equivalent rate will typically be higher than the actual annual rate calculated without compounding.

Time Value of Money  TVM
The idea that money available at the present time is worth more ... 
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The income return on an investment. This refers to the interest ... 
AddOn Interest
A method of calculating interest whereby the interest payable ... 
Interest
1. The charge for the privilege of borrowing money, typically ... 
Accrued Interest
1. A term used to describe an accrual accounting method when ... 
Compounding
The ability of an asset to generate earnings, which are then ...

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