AER vs CAR and the effect of DIRT on monthly vs annual interest payments on savings

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MugsGame

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1. Is Compound Annual Rate calculated in the same way as Annual Equivalent Rate (AER / EAR) ?

2. Is there a better measure to use when comparing deposit accounts that credit interest monthly with accounts that credit interest annually? Should the regulator force banks to advertise annualised percentage returns before and after DIRT?

If I have a choice between two accounts with the same guaranteed AER, but one pays interest monthly and one pays interest annually, I'm better off with the the annual interest option. The reason is DIRT reduces the compounding effect of the monthly interest. In other words, if an institution pays interest monthly, it can quote a slightly higher interest rate for the same annualised cost to it.
 
Re: AER vs CAR and the effect of DIRT on monthly vs annual interest payments

Can you quote or link to the section you believe says that? The definitions I linked to don't actually say this, though you could argue that's what they mean. If they are the same, why are the definitions different? There must be a more formal definition somewhere.
 
Re: AER vs CAR and the effect of DIRT on monthly vs annual interest payments on savin

I was referring to the glossary/jargon buster page. I guess it doesn't explicitly say that they are all the same thing but I thought that they were. Have you tried Wikipedia on both of your questions?
 
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