AER Cheating

SirGoodKnightIn

So now AA is near the top of the table with headline grabbing 6.46% AER but the gross is 6.28% and must be paid into another account. Unless you can pay it in an account paying 6.28% gross you will not achieve 6.46% over the year. It's a cheat and the "actual" AER is 6.28%. I have complained about this practice to the FSA and the Advertising Standards Authority over a similar product [Birmingham Midshires e-Saver (2)] which uses the same trick (or con?). Another product in the HBOS group.

Why are they allowed to get away with it. Are you fooled by this?:j

Lokolo

Oh dear....

I think you have misunderstood it.

The rates are as advertised. Its 6.28% monthly, which is 6.46% AER. I don't see the problem? I don't see how the "actual" AER is 6.28% what so ever?

atypical

AER: "Interest that is calculated under the assumption that any interest paid is combined with the original balance and the next interest payment will be based on the slightly higher account balance."

Which in the case of the AA isn't true as they insist on paying the interest out of the account. How are they justifying using 6.46% as the AER

Lokolo

Oh right I see now! Hm does seem a bit strange. It does say at the bottom with the * they say the AER so direct comparisons with other savings can be made.

But even so

Aegis

The AER is the Annual Equivalent Rate, and is defined as the rate of interest that you would get if you left the money in the account to compound. As that's the only way it can be used, this is the correct way to show the interest rate even though the interest must be directed outside the account.

Yes, it's a bit of a weird stipulation, but it's correct usage.

YorkshireBoy

The OP is complaining that it's not possible to make/earn/achieve/attain the quoted AER, because his interest is paid away. Indeed, if he had his interest paid into an account that didn't pay interest then his AER would be 6.28%.

These accounts are becoming more popular because it allows providers to top the savings tables, even though it's not possible to earn the quoted AER due to monthly interest paid away.

It's completely 'legal' due to the definition of AER, but leaves a bitter taste sometimes!

atypical

Aegis wrote: »

The AER is the Annual Equivalent Rate, and is defined as the rate of interest that you would get if you left the money in the account to compound. As that's the only way it can be used, this is the correct way to show the interest rate even though the interest must be directed outside the account.

Yes, it's a bit of a weird stipulation, but it's correct usage.

Yeah I see that now, it's very misleading and results in exactly the opposite of it's proclaimed intention: "...[ability] to compare more easily what you can expect from your savings over time".

masonic

This is just a variation on a theme of banks offering top paying accounts with strings attached. It wouldn't surprise me if we started seeing 'No special conditions' categories in the comparison sites as the clean paying accounts fade into the minority.

Jonbvn

The OP is correct, since it would appear to be deliberate obfuscation. However, given that the AA account beats most of the competition hands down, I find it difficult to get angry about such a minor issue.