AER explained?

Legacy_user

Hi

Always happy to have my stuff proof-read, so Thanks.

eskbanker

Not quite sure of the point you're trying to make (and can't actually see the quoted images) but it's important to understand that in your example r is the gross interest rate not the AER, so the figure to use for individual interest payments during the year is 0.0296 not 0.03 - once they compound over the course of the year they'll ultimately equate to the AER of 3%, but, for example, the interest paid on £2500 in a 31-day period at 3% AER (2.96% gross) will actually be £6.28 not £6.37 if you're going to try to reconcile this....

Edit: this now makes no sense whatsoever after OP chose to completely wipe his lengthy post, in which he seemed confused by interest payments that vary according to the number of days in the period!

System

Not really.

But you do not achieve the 3.00% AER if you are already at 2500.

2430 will compound up to achieve 3.00% AER.

No I am not confused at all by the length of the payment period.

Now it has been clarified, rather than just my thoughts, on the gross being paid and never achieving the AER on the account.

And typing it out and setting it down on paper helps to clarify things.

http://www.moneysavingexpert.com/banking/interest-rates is what i found confusing on AER.