# Difference between Gross Interest and AER?



## Mayo1969 (10 Dec 2007)

I appreciate this may have been explained here before but can someone explain again to me what is the difference between Gross Interest on a Saving A/c and AER? For example in the new AIB On Line 7 Day notice a/c Gross Interest is listed as 4.95% whilst AER is listed as 5%


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## Lossy (11 Dec 2007)

My guess is that the interest on that account is calculated every 6 months so if for example you were saving €100:

after 6 months, interest would be calculated as €2.48 (half of 4.95%) leaving your balance at €102.48

after 12 months, interest would be calculated as €5.01 (half of 4.95%) but calculated on the balance of €102.48 and not €100

so total accumulated after 12 months is €105.01 ie 5% AER (annual equivalent rate) ....  well near enough!

hope that makes sense
hope its correct too


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## GeneralZod (11 Dec 2007)

Lossy said:


> hope that makes sense
> hope its correct too



That's correct.

Here's the AER calculation for a gross rate of 4.95% calculated every six months

5.01% = ([1 + 4.95%/(2*100)]^2 -1) * 100 

Using formula d from this .


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