It still frustrates me how different providers advertise gross and AER (Annual Equivalent Rate) rates, certainly considering that one of the reasons AER was brought in was so customers could compare accounts equally to get the real return. AER rates show you what interest rate you will receive over the year if the interest was paid and compounded each year. However, one of the best uses of AER is that it takes into account any applicable bonuses; for example if you had two account with the same gross rate, one without a bonus and one with a 6 months bonus, the AER would highlight that the account without a bonus is better value in the longer term. Fairly straightforward stuff.
This was a fantastic thing to bring in considering that not that long ago (ok maybe longer than I’d like to admit) savings accounts were appearing in the best buy tables with bonuses that only lasted a matter of weeks – so anyone taking out the account would only benefit from the best buy rate for a very short period. In comes AER and now we know exactly how competitive the account is.
However, not everyone advertises the AER the same. Our personal favourite gripe is advertising the ‘equivalent’ AER. So the rate you would get if the bonus actually lasted for 12 months – but doesn’t - so you physically can’t get that rate of interest. How confusing is that!?
Providers are always looking at ways to lure you in so it’s vital that you’re always reading the small print. Or better still – let us do it for you. We love it. I know, we really should get out more.