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 ... 
Yield
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 ...

How do you use a financial calculator to determine present value?
Determining the present value of a given cash flow is based on the concept that money today is inherently worth more than ... Read Full Answer >> 
How do I calculate production costs in Excel?
It is impossible for a single method of calculating production costs to work for all businesses, much less for a Microsoft ... Read Full Answer >> 
How do you calculate variance in Excel?
To calculate statistical variance in Microsoft Excel, use the builtin Excel function VAR. Given a set of numbers value1 ... Read Full Answer >> 
How do I calculate the production possibility frontier in Excel?
The production possibility frontier is actually a data set of values that produce a curve expressing opportunity cost on ... Read Full Answer >> 
How can you calculate free cash flow to equity (FCFE) in Excel?
Free cash flow (FCF) is a measure of the financial performance of the business. FCF is calculated by determining the operating ... Read Full Answer >> 
How can you calculate diminishing marginal returns in Excel?
As production capacity increases, the return gained per each new unit of capacity decreases after a certain point. This is ... Read Full Answer >>

Economics
Forces Behind Interest Rates
Get a deeper understanding of the importance of interest rates and what makes them change. 
Investing Basics
Understanding The Time Value Of Money
Find out why time really is money by learning to calculate present and future value. 
Investing Basics
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. 
Investing Basics
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. 
Retirement
Bond Basics Tutorial
Investing in bonds  What are they, and do they belong in your portfolio? 
Bonds & Fixed Income
Advanced Bond Concepts
Learn the complex concepts and calculations for trading bonds including bond pricing, yield, term structure of interest rates and duration. 
Credit & Loans
What's a Revolving Line of Credit?
A revolving line of credit is an arrangement made between a company or an individual and a bank to borrow money on a shortterm basis. 
Savings
Explaining Checking Accounts
A checking account is an account at a financial institution, usually a bank, that allows for deposits and withdrawals. 
Stock Analysis
What Makes Goldman Sachs a Good Bet?
Six years after the subprime meltdown, Goldman Sachs is a robust $87 billion company instead of a historical footnote. Here's why. 
Economics
What is a Nostro Account?
A nostro account is a bank account held in a foreign country by a domestic bank, denominated in the currency of that country.