AER savings interest rate

kingston101

A building society have offered me the following: My bond opened in December 2006 for 1 year at 5.8% AER fixed could be extended from August 2007 for 1 year to August 2008 at a rate of 6.2% AER fixed no interest would be paid or credited until 2008. I maintain that they should not quote AER rates when interest is paid at longer periods than 1 year, unless they amend the AER to show the correct rate over the period. They say they are correct - does anyone have a view?

Will

masonic

I think I would have to agree with you. If interest were paid and compounded annually, as is required by the AER model, then you would not come up with the same figure as the actual expected interest. IMHO, AER should not be used to describe a product in which interest payments are less frequent than annual. That's not to say what they have done is technically incorrect, just misleading.