what is the annual equivalent rate aer 
the annual equivalent rate aer is the interest rate for a savings account or investment product that has more than one compounding period aer is calculated under the assumption that any interest paid is included in the principal payment s balance and the next interest payment will be based on the slightly higher account balance the aer method means that interest can be compounded several times in a year depending on the number of times that interest payments are made aer is also known as the effective annual interest rate or the annual percentage yield apy the aer is the actual interest rate that an investor will earn for an investment a loan or another product based on compounding the aer reveals to investors what they can expect to return from an investment the roi the actual return of the investment based on compounding which is more than the stated or nominal interest rate assuming that interest is calculated or compounded more than once a year the aer will be higher than the stated interest rate the more compounding periods the greater the difference between the two will be investors can compare the aer for different banking products to find the best savings accounts or other investment vehicles formula for the aer annual equivalent rate 1 r n n 1 where n the number of compounding periods times per year interest is paid r the stated interest rate begin aligned text annual equivalent rate left 1 frac r n right n 1 textbf where n text the number of compounding periods times per year interest is paid r text the stated interest rate end aligned annual equivalent rate 1 nr n 1where n the number of compounding periods times per year interest is paid r the stated interest rate 