Many financial products have different frequency and mode of repayment. AER is a figure quoted in loan ads which helps people compare different financial products. It indicates what the rate would be if interest was compounded and paid just once a year. The annual equivalent rate may be misleading at time and may not reflect the actual interest charged.
In the United Kingdom, the amount of interest received from savings accounts is listed in AER form.
AER Formula:
AER = (1+r/n)^n - 1
where,
r is the gross rate of interest;
n is the number of times a year that interest is paid.
