AER to monthly rate

Jim02

Hi,

Is there a nice easy formula to work out the monthly interest rate, given an AER? For example, if a BS offers 5% AER, how can I work out what the monthly interest rate is?

Thanks

Jim

Robert_Sterling_3

The monthly rate multiplier , making the usual assumptions, is the 12th root of the annual rate multiplier.

It is not 1/12 th of the AER.

AER = 5%

Annual Multiplier   1.05

Monthly Multiplier 12th root of 1.05  =  1.004074124

Monthly interest rate  0.00407 approx i.e. 0.407% approx.

Usual assumptions:-

All years have 365 days

All months have the same number of days.

Jim02

Thanks Robert,

I knew it couldn't simply be 1/12th, but I couldn't work out exactly what the figure was. It's nice and easy, as it turns out!

Cheers

Jim

Robert_Sterling_3

Thank you very much  :)

You do a somewhat similar operation to get from 1% per month as the monthly rate

Monthly Multiplier  1.01

Raise to power 12  

1.01^12  =  1.1268

So annual rate is  12.68%