Saving AER% confused

dwarfer

hey peeps

im really confused with saving accounts, i see ads with "6%AER" and "6%AER GROSS" etc, but what should i be looking at to find out the ACTUAL percentage that i will get coz i want to find the best rate


hope someone can help me

thanks

Jonsi

I believe that the AER (annual equivalent rate) is what tells you the actual percentage you get in the year. For an account that pays interest annually it should be the same as the Gross rate. For an account that pays interest monthly, the gross rate will be slightly less than the AER because of compounding interest i.e. you get interest on the interest each month.

Hope I haven't confused you further!

dwarfer

thanks so it's AER Gross that is what you get?

eg, 6% AER gross means you GET 6% no less interest?

Jonsi

Yes, if it says 6% AER or 6% AER Gross, you will get 6%.

SeanW

You should use AER to compare accounts.

Do not forget though, if you pay tax and it's not an ISA, you will pay either 20% or 40% income tax on that interest, so when it comes to calculating interest, take that into account.

Robert_Sterling

Although if you pay tax then tax will be taken at 20% it will actually be due at 0%, 10%, 20% or 40% and so having paid tax at 20% you may be able to reclaim some of the tax or you may have to pay further tax.

Paul_Herring

While the effect is in the pence region, accounts paying monthly will pay slightly less interest than those that pay annually, because the interest being compounded will be net of tax, not gross. AER assumes the tax is paid gross.