The Annual Equivalent Rate of interest is generally applied to savings accounts, and it means that the interest that your balance earns over a period is added to that original balance for the purpose of calculating the interest for the following period. This is an on-going process, which means that if interest is applied to your account several times a year, the interest that you earn during each period will be added on (or compounded) each time that it’s applied. The AER is a good way of comparing the interest that you will earn with different savings accounts, as it takes into account both the rate of interest on the account and the number of times during a year that it is applied.

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