AER Calculator – Free online calculator!

Do you get stuck comparing different savings accounts with various interest rates?

Banks show rates in different ways—gross rate, net rate, AER—making it hard to know which account gives you the best return.

Our AER Calculator (and AER Interest Calculator) fixes this problem for you.

This tool converts any savings rate to Annual Equivalent Rate (AER) in seconds, showing exactly what your money will earn with compound interest included. You can now pick the best savings account by comparing all options on equal terms.

What Does “AER” Mean?

AER stands for “Annual Equivalent Rate.” It represents the effective amount of interest you earn on savings or investments over one year.

Unlike a simple or nominal interest rate, the AER calculation includes how frequently the interest is added to your balance (compounded)—for example, monthly or annually. By factoring in compounding, AER provides a more accurate picture of your real annual return.

Our AER Calculator has two simple inputs, nominal interest rate, and compounding frequency.

AER Calculator Inputs

Nominal Interest Rate: the nominal interest rate is the stated or advertised interest rate before accounting for compounding.

Compounding Frequency: compounding frequency is how often interest is added to your savings or investment balance within a year.

Why Is AER Important?

1. Easier Comparisons

• AER lets you compare different savings or investment accounts even if the interest is compounded at different intervals. Two accounts may list the same nominal rate but have different effective returns if one compounds more often.

2. Shows the Power of Compounding

• Compounding occurs when interest is calculated not only on the principal but also on previously earned interest. Because AER accounts for this compounding effect, it reveals the true annual growth of your money.

3. Informed Financial Decisions

• Knowing an account’s AER helps you identify which product offers a better return. This knowledge is vital when you’re deciding where to keep or invest your money.

Why Do We Calculate AER?

Clearer Information

• Financial institutions present interest rates in terms of AER so that consumers can make straightforward, apples-to-apples comparisons of various accounts.

Optimize Your Savings

• By looking at the AER, you can pinpoint which products will yield the best long-term return on your money.

Strategic Financial Planning

• If you know your AER, you can estimate how quickly your savings will grow. This helps in setting realistic financial goals and timelines.

Can our other calculators help you?

Looking to maximize your savings and understand interest rates better? Our ISA Calculator helps you estimate tax-free savings growth, while our Percentage Calculator makes it easy to calculate interest rates, discounts, and more. Learn how AER (Annual Equivalent Rate) impacts your savings and financial decisions—check out our ISA Calculator and Percentage Calculator to make smarter money choices!

Thinking of moving home? Maybe our Stamp Duty Calculator or Let-to-Buy Caculator can help?

Examples of AER

A Practical Example of AER

Imagine two savings accounts:

• Account A has a nominal rate of 5%, compounded once a year.

• Account B has a nominal rate of 4.9%, but it compounds monthly.

At a glance, 5% might seem better. However, when you calculate each account’s AER:

• Account A’s AER: 5.00%

• Account B’s AER: 5.01%

Because Account B compounds more frequently, its actual return becomes slightly higher despite the lower nominal rate.

Dynamic AER Comparison

Simply enter your nominal interest rate, and we will show the rate across different compounding frequencies.

What It Means for You

AER is your roadmap to understanding how your savings or investments grow on a yearly basis. By focusing on AER instead of just nominal rates, you eliminate confusion and ensure you pick the financial product that genuinely offers the best return, helping you achieve your financial objectives more effectively.

FAQ

What does 5% AER mean?

If a bank offers 5% AER on a savings account with monthly compounding, this means:
• If you deposit $1,000, after one year, you would have:
• $1,050.95 (not just $1,050, because of compounding).

If interest were compounded annually, you’d simply get $1,050 ($1,000 + 5%).

What does AER mean?

AER (Annual Equivalent Rate) is the actual interest rate you earn on savings or investments in a year, factoring in compounding.

It allows for easy comparison between different savings accounts that may have different compounding periods (daily, monthly, quarterly, or annually).

How do I calculate AER?

To calculate AER (Annual Equivalent Rate), take the interest rate, divide it by how many times it compounds in a year (e.g., monthly = 12), then add 1, raise it to the power of the number of times it compounds, and subtract 1.

This gives you the real yearly interest rate after factoring in how often interest is added to your money.

Example: How AER Works in Action

Let’s say a bank offers 5% nominal interest with monthly compounding.
1. Divide the interest rate by 12 (since it’s compounded monthly):
• 5% ÷ 12 = 0.4167% per month
2. Apply the AER formula:

So, instead of just 5% per year, the real annual return is 5.12% due to compounding.

What is an example for AER?

Example: How AER Works in Action

Let’s say a bank offers 5% nominal interest with monthly compounding.
1. Divide the interest rate by 12 (since it’s compounded monthly):
• 5% ÷ 12 = 0.4167% per month
2. Apply the AER formula:

So, instead of just 5% per year, the real annual return is 5.12% due to compounding.
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How do you convert AER to monthly rate?

To convert AER (Annual Equivalent Rate) to a monthly interest rate, you need to reverse the compounding process. The formula is:

Where:
• AER is in decimal form (e.g., 5% AER → 0.05).
• The result is the monthly interest rate in decimal form (multiply by 100 to get a percentage).

What is difference between AER and APR?

AER (Annual Equivalent Rate) is used for savings and investments, showing the true annual return by including compound interest. APR (Annual Percentage Rate) applies to loans and credit cards, showing the interest you pay but usually excluding compounding.

AER helps you compare earnings, while APR helps you compare borrowing costs—higher AER is better for savings, while lower APR is better for loans.

How do you use AER?

You use AER (Annual Equivalent Rate) to compare savings accounts and investments by showing the true annual return, including compounding.

When choosing a savings account, a higher AER means better long-term growth for your money. To maximize returns, pick an account with a higher AER and frequent compounding (e.g., monthly over annually). 🚀