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Monthly AER Formula:
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Monthly AER (Annual Equivalent Rate) is the monthly equivalent interest rate derived from an annual AER. It represents the monthly compounding rate that would yield the same annual return as the stated AER.
The calculator uses the monthly AER formula:
Where:
Explanation: This formula calculates the monthly interest rate that, when compounded monthly, would produce the same annual return as the given AER.
Details: Calculating monthly AER is essential for comparing different savings accounts, understanding monthly compounding effects, and making informed financial decisions about investments and savings products.
Tips: Enter the Annual AER percentage value (e.g., for 5% AER, enter 5). The calculator will compute the equivalent monthly rate. All values must be valid (AER ≥ 0).
Q1: What is the difference between AER and APR?
A: AER (Annual Equivalent Rate) shows the interest you'll earn on savings, while APR (Annual Percentage Rate) shows the cost of borrowing including fees and interest.
Q2: Why is monthly AER lower than annual AER divided by 12?
A: Because of compounding effects. The monthly rate compounds over 12 periods to equal the annual rate, so it must be slightly lower than a simple division by 12.
Q3: Can monthly AER be negative?
A: Yes, if the annual AER is negative, indicating a loss rather than gain on the investment or savings.
Q4: How accurate is this calculation for daily compounding?
A: This assumes monthly compounding. For daily compounding, a different formula would be used, though the difference is usually minimal.
Q5: Is monthly AER the same as monthly interest rate?
A: Essentially yes, but AER specifically refers to the equivalent rate that includes compounding effects over a year.