# Difference between Gross and AER



## Black Sheep (31 Aug 2011)

On a 1 year fixed deposit account with PTSB the Gross interest rate is 3.95% and the AER is 4.1%.

Can someone explain this please


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## STEINER (31 Aug 2011)

http://www.askaboutmoney.com/showthread.php?t=69982


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## Black Sheep (31 Aug 2011)

Yes I've seen that but it does not answer my question.

1 Year fixed rate fixed term = 3.95% Gross

AER = 4.1%

Your explanation is quite clear for any term other than 1 year


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## Sunny (31 Aug 2011)

I would imagine that even though the account is a fixed one year term, the interest gets capitalised every 6 months. I haven't worked it out but see does this add up. Otherwise the rates should be the same.


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## Sunny (31 Aug 2011)

Actually, I looked it up. You are talking about an interest first account. The interest gets paid after 1 month.

[broken link removed]


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## Brendan Burgess (31 Aug 2011)

They should be exactly the same. 
They are in this ad on the PTSB website

https://www.permanenttsb.ie/media/p...ates/permanent-tsb-Deposit-Interest-Rates.pdf

Fixed Term Deposits Gross*% Gross Return*% AER%
3 Months e5,000 + 3.35 0.83 3.39
6 Months e5,000 + 3.50 1.73 3.53
12 Months e5,000 + 3.95 3.95 3.95
You can only open Online Accounts by using the internet within our Open24 Service and you are a registered user.


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## The Ghoul (31 Aug 2011)

My understanding of it is becasue it is an interest first account. The idea is that you get your interest within the first month then are free to reinvest it.

Eg
You open an account with 10,000
3.95% of that is 395

Now you get that interest within one month. If you were able to lodge it to the same fixed term PTSB 1 year account (which you can't but you are free to invest it elsewhere) you'd get 3.95% *11/12*395 = 14.30

395 + 14.30/10,000 is about 4.1%.

I have one of these accounts and bought an An Post savings cert with the interest.

In the above example I'm not sure whether the "interest on the interest" should be multiplied by 11/12 or by 12/12. it doesn't make a big difference anyway.


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## Brendan Burgess (31 Aug 2011)

Hi Ghoul

Well done!


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## Black Sheep (31 Aug 2011)

Sorry but it doesn't work like that as I opened one of these accounts a few days ago and asked for an explanation as per my question above. A very confusing reply was given.

The position is as per my original query 3.95 Gross 4.1 AER and I was given the option of receiving the interest up front and investing it elsewhere which I did.  I could also have chosen to buy a new jacket with the interest or leave it just sitting in the account. Therefore I don't think the bank can claim AER 4.1 in that case and they don't say "possible 4.1 Aer"

This is a 1 year fixed rate deposit and no additional funds can be added during he fixed term. 
The rate I will receive at the end of the year is 3.95

Compare this with EBS ad in today's Indo  "1 year fixed rate 4.25  AER 4.25"


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## Sunny (31 Aug 2011)

They are free to claim a higher AER because they give you the interest after one month so you can invest it unlike other accounts that pay you interest at the end. What you do with the interest is up to you but PTSB make a reasonable assumption that the money is reinvested at the same rate. They have to publish an AER but to do that, they have to assume a rate of return on the interest. I don't have any problem with them and the way they marketing it. The Gross rate is clear and the higher AER makes sense. The AER is only used to make it easier to compare different products.


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