AER Savings Calculator UK

AER Savings Formula:

\[ Savings = Principal \times [(1 + AER_{new})^t - (1 + AER_{old})^t] \]

Principal (£):

AER New (%):

AER Old (%):

Time (years):

years

Savings (£):

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1. What is the AER Savings Calculator?

The AER (Annual Equivalent Rate) Savings Calculator estimates the additional savings you can earn by switching to a savings account with a higher AER compared to your current rate over a specified period.

2. How Does the Calculator Work?

The calculator uses the AER savings formula:

\[ Savings = Principal \times [(1 + AER_{new})^t - (1 + AER_{old})^t] \]

Where:

\( Principal \) — Initial investment amount in pounds (£)
\( AER_{new} \) — New annual equivalent rate as a percentage
\( AER_{old} \) — Current annual equivalent rate as a percentage
\( t \) — Time period in years

Explanation: The formula calculates the difference in compound interest earned between the new higher rate and your current rate over the specified time period.

3. Importance of AER Comparison

Details: Comparing AER rates is crucial for maximizing savings returns. Even small differences in AER can lead to significant savings over time due to compound interest effects.

4. Using the Calculator

Tips: Enter your principal amount in pounds, both AER rates as percentages (e.g., 2.5 for 2.5%), and the time period in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is AER?
A: AER (Annual Equivalent Rate) shows what the interest rate would be if interest was paid and compounded once each year, allowing easy comparison between different savings products.

Q2: How does compound interest affect savings?
A: Compound interest means you earn interest on both your original principal and accumulated interest, leading to exponential growth over time.

Q3: Are there any fees or taxes to consider?
A: This calculator shows gross savings. Remember to account for any account fees and potential tax implications on interest earned.

Q4: Can I use this for regular savings accounts?
A: This calculator is designed for lump sum investments. For regular savings, different calculations are needed to account for multiple deposits.

Q5: How often is interest typically paid?
A: Interest payment frequency varies by account - monthly, quarterly, or annually. AER standardizes these to allow fair comparison.