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AER Formula:
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The Annual Equivalent Rate (AER) is the interest rate for a savings account or investment product when compounding is taken into account. It shows what the annual interest rate would be if the interest was paid and compounded once each year.
The calculator uses the AER formula:
Where:
Explanation: The formula calculates the effective annual rate by accounting for the frequency of compounding, providing a true comparison between different savings products.
Details: AER allows consumers to compare different savings accounts and investment products on a like-for-like basis, regardless of their compounding frequencies. It's particularly important for HSBC customers to understand the true return on their savings.
Tips: Enter the gross interest rate as a percentage (e.g., 2.5 for 2.5%) and the number of compounding periods per year (e.g., 12 for monthly compounding, 4 for quarterly). All values must be positive numbers.
Q1: What's the difference between gross rate and AER?
A: Gross rate is the basic interest rate without compounding, while AER includes the effect of compounding and shows the true annual return.
Q2: Why is AER important for HSBC savings accounts?
A: AER allows you to compare HSBC savings products with different compounding frequencies and with competitors' offerings accurately.
Q3: How often do HSBC accounts typically compound interest?
A: This varies by account type - some compound daily, monthly, quarterly, or annually. Check your specific account terms.
Q4: Does a higher compounding frequency always mean higher AER?
A: Yes, for the same gross rate, more frequent compounding results in a higher AER due to the compounding effect.
Q5: Is AER the same as APR?
A: No, AER is for savings and investments (what you earn), while APR is for borrowing (what you pay). Both account for compounding but in different contexts.