Annual Equivalent Rate - AER

Filed Under » ,
Dictionary Says

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:

Annual Equivalent Rate (AER)


Where:
n = number of times a year that interest is paid
r = gross interest rate
Investopedia Says

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.

Articles Of Interest

  1.

    Forces Behind Interest Rates

    Get a deeper understanding of the importance of interest rates and what makes them change.

  2. Understanding The Time Value Of Money

    Find out why time really is money by learning to calculate present and future value.

  3. APR and APY: Why Your Bank Hopes You Can't Tell The Difference

    Banks use these rates to entice borrowers and investors. Find out what you're really getting.

  4. Interest Rates And Your Bond Investments

    By understanding the factors that influence interest rates, you can learn to anticipate their movement and profit from it.

  5. Advanced Bond Concepts

    Learn the complex concepts and calculations for trading bonds including bond pricing, yield, term structure of interest rates and duration.

  6. Bond Basics Tutorial

    Investing in bonds - What are they, and do they belong in your portfolio?

  7. How New Offshore Bank Rules Will Affect Americans

    FATCA is being implemented in 2013. Here is how it will affect the personal banking and taxes of Americans who hold offshore bank accounts.

  8. 6 Biggest Millionaire Flops

    If you have lost money, you're not alone, but at least you can put some blame on the market.

  9. If two people own a securities account, listed as joint tenants-in-common, it means:

    A. They each have an undivided interest in the propertyB. If one dies, that person's interest does not automatically pass to the otherC. They do not necessarily have equal interests ...
comments powered by Disqus
Marketplace
Hot Definitions

  1. Racketeering

    Racketeering refers to criminal activity that is performed to benefit an organization such as a crime syndicate. Examples of racketeering activity include...

  2. Lawful Money

    Any form of currency issued by the United States Treasury and not the Federal Reserve System, including gold and silver coins, Treasury notes, and Treasury bonds. Lawful money stands in contrast to fiat money, to which the government assigns value although it has no intrinsic value of its own and is not backed by reserves.

  3. Fast Market Rule

    A rule in the United Kingdom that permits market makers to trade outside quoted ranges, when an exchange determines that market movements are so sharp that quotes cannot be kept current.

  4. Absorption Rate

    The rate at which available homes are sold in a specific real estate market during a given time period.

  5. Yellow Sheets

    A United States bulletin that provides updated bid and ask prices as well as other information on over-the-counter (OTC) corporate bonds...

  6. Bailment

    The contractual transfer of possession of assets or property for a specific objective.
Trading Center