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AER Interest Formula:
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The Annual Equivalent Rate (AER) is the interest rate for a savings account or investment product that includes compound interest. Gross interest refers to the total interest earned before any taxes or deductions are applied.
The calculator uses the simple AER interest formula:
Where:
Explanation: This formula calculates the gross interest earned on an investment using the annual equivalent rate over a specified time period.
Details: Understanding AER helps investors compare different savings accounts and investment products on a like-for-like basis, ensuring they can make informed financial decisions about where to place their money for optimal returns.
Tips: Enter the principal amount in your local currency, the AER as a percentage, and the time period in years. All values must be positive numbers.
Q1: What is the difference between AER and APR?
A: AER (Annual Equivalent Rate) shows the interest you'll earn on savings, while APR (Annual Percentage Rate) shows the cost of borrowing including fees and charges.
Q2: Does AER include compound interest?
A: Yes, AER takes into account compound interest, showing what you would earn over a year if interest was paid and compounded each time it was due.
Q3: Is gross interest the same as net interest?
A: No, gross interest is the total interest earned before any deductions, while net interest is what you actually receive after taxes and fees.
Q4: Can AER change during the investment period?
A: Yes, many savings accounts have variable AER rates that can change based on market conditions and the bank's policies.
Q5: How often is interest typically compounded?
A: This varies by institution - common compounding periods include daily, monthly, quarterly, or annually. The AER standardizes these differences for comparison.