According to a definition on Wikipedia, "The effective interest rate, effective annual interest rate, annual equivalent rate or simply effective rate is the interest rate on a loan or financial product restated from the nominal interest rate and expressed as the equivalent interest rate if compoundRead more

According to a definition on Wikipedia, “The effective interest rate, effective annual interest rate, annual equivalent rate or simply effective rate is the interest rate on a loan or financial product restated from the nominal interest rate and expressed as the equivalent interest rate if compound interest was payable annually in arrears.”

Simply speaking we can say that, Annual Equivalent Rate or AER is the real or actual interest rate that an investor would manifest at the end of the year for his shares and bonds or loans. It could also be noted that the AER will be higher than the stated interest rate.

Hi Maitya, I think what you mean to ask here is in comparison with standard interest rate of 5%. Although its very important to understand that which interest rate would be higher and that would obviously the AER one. Also higher the interest rate, better the profit on your investment. So let's sayRead more

Hi Maitya, I think what you mean to ask here is in comparison with standard interest rate of 5%. Although its very important to understand that which interest rate would be higher and that would obviously the AER one. Also higher the interest rate, better the profit on your investment. So let’s say your standard interest rate is 5%, which is divided as 2.5% for 2 parts of six months, then by the end of the year your AER would be 5.06%, which would be greater than the one which you accrue at the end of the year alltogether.

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