2 min read
Definition
AER is the savings-side counterpart to the borrowing EAR. It expresses the interest you would earn in a year, taking into account how often interest is paid and added to the balance. An account paying 4% gross monthly has an AER slightly above 4% because each month’s interest itself earns interest.
In plain terms
It lets you compare a monthly-interest account with an annual-interest one on equal footing. Higher compounding frequency nudges the AER above the gross rate.
Why it matters for your company
When you park a company’s cash reserve or tax pot, compare accounts on AER, not the gross headline. Model the growth with the compound interest calculator. See also gross rate.
Credicorp lends to your company, not to you personally, and takes no personal guarantee. See indicative terms on business loans, or apply online in minutes.
Related reading
Gross rate
Gross rate is the interest paid on savings before any tax is deducted, quoted per period rather than…
Read →Effective annual rate (EAR)
Effective annual rate (EAR) is the real yearly cost of a facility once in-year compounding is folded in, so…
Read →
Compounding frequency
Compounding frequency is how often accrued interest is added to the balance, after which it starts earning or…
Read →Advance rate
The advance rate is how much of an asset's value a lender will lend against — 80% of invoices, say. The gap…
Read →Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.