AER interest rate

sweepea_2

Does it make any difference to the AER on a savings account if the interest is paid monthly and is paid out of the account rather than being retained within the account or is this already taken into account in the AER calculation?

Lokolo

No, it will effect the AER calculation. AER is usually for if the interest is paid into the account.

If interest is paid out of the account, then the gross monthly rate will be the AER.

CLAPTON

AER is a way of comparing different saving accounts that pay interest in different ways i.e. monthly, quarterly and yearly being the most common.

so if you saved 100 in an 6% AER a/c then after one year you would expect to get £6 interest whether it's paid monthly, quarterly or yearly etc a/c.
Of course that assumes the monthly interest is retained in the a/c and the interest is compounded where applicable.

If you withdraw the interest monthly then you would receive less than £6 in interest.

Is that what you are asking?

Paul_Herring

The difference between the Gross figure on an account paying annually, and the 'equivalent' AER on account is:
- Nothing if you don't pay tax
- Negligible if you do. (AER takes into account compounding interest paid on any interval that isn't yearly, but assumes the interest accrues without tax being taken off.)

For example, for £1000 at 6% AER (5.84% gross monthly, 6% annually) the difference in interest is 27p.

sweepea_2

Thanks for that. If I have understood you clearly: I should be asking for the interest from the account to be retained in the account or I am not getting, for example, 6% AER but less because the interest is not being compounded?

CLAPTON wrote: »

AER is a way of comparing different saving accounts that pay interest in different ways i.e. monthly, quarterly and yearly being the most common.

so if you saved 100 in an 6% AER a/c then after one year you would expect to get £6 interest whether it's paid monthly, quarterly or yearly etc a/c.
Of course that assumes the monthly interest is retained in the a/c and the interest is compounded where applicable.

If you withdraw the interest monthly then you would receive less than £6 in interest.

Is that what you are asking?

Masomnia

sweepea wrote: »

Thanks for that. If I have understood you clearly: I should be asking for the interest from the account to be retained in the account or I am not getting, for example, 6% AER but less because the interest is not being compounded?

That's exactly right.