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Why is the gross interest rate lower than the AER?

Ryan avatar
Written by Ryan
Updated yesterday

The gross interest rate is the rate before tax and does not include the effect of compounding. It simply shows the basic rate applied to your savings.


Since your account compounds interest daily and pays it monthly, the AER will be higher than the gross rate, because it includes the effect of earning interest on interest. If your funds stay in the account for the full year at the same interest rate, the AER represents the actual return you'd receive.

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