Comparing Like for Like - AER

Question 1

What should every advert for savings or deposit accounts show?

Answer 1

Quoted interest rate

Annual Equivalent Rate (AER)

Question 2

What does the AER allow depositors to do?

Answer 2

Compare two accounts like for like.

Compare two flat rates

Question 3

Is the AER quoted Gross or Net?

Answer 3

Gross

Question 4

What is AER?

Answer 4

Notional rate that is quoted on the interest paid on savings & investments.

Question 5

AER provides depositors with a true rate of return taking into account what?

Answer 5

How often interest is paid in 12M

Return based on compounding + paid annually

Question 6

How often is the interest paid when the AER quoted, is high?

Answer 6

Monthly or quarterly

Question 7

What do the monthly or quarterly interest payments show?

Answer 7

The impact of compounding of interest on interest.

Question 8

Does AER apply in every circumstance?

Answer 8

No - AER only applies where interest is left to roll over in the account for the whole period.

If the depositor draws interest out, its no longer meaningful.