The Annual Equivalent Rate is a measure of the performance of an investment scheme such as a bank account, an ISA (Individual Savings Account) or similar. It is normally written as AER, and gives the rate of interest that would effect the account if it acted for a full year, compounded annually.

If the account paid compound interest of 0.4% per calendar month, it's AER would be

(1 + 0.4/ 100)12-1,
giving 4.907%. This would be written (unsurprisingly) as 4.907%AER. Not a bad rate.

AER gives a one-figure value for the investment at the end of a standard period. Therefore it is used as the basis for comparing different investment options, which may operate their interest payments in different ways.

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