6% AER – Simple Guide to Annual Equivalent Rate

You've probably seen the term AER on a savings brochure or a bank website, but what does 6% AER really mean for you? In plain English, AER shows the total interest you earn over a year, taking compounding into account. It lets you compare different accounts even if they add interest at different intervals.

How AER is worked out

To calculate AER, the bank starts with the interest rate it pays for each period—monthly, quarterly, or daily. It then compounds that rate for the whole year and expresses the result as a single percentage. The formula looks a bit technical, but you don’t need to remember it. Just know that a higher AER means more money added to your balance if you leave it untouched for a year.

For example, if a account offers 0.5% interest each month, the bank compounds that twelve times. The resulting AER will be higher than 6% because each month’s interest earns interest itself. This is why a 6% AER can be more attractive than a straight 5.5% nominal rate that doesn't compound.

What a 6% AER does for your wallet

Let’s say you put £1,000 into a savings account that advertises a 6% AER. After one year, you’d end up with about £1,060, assuming you don’t touch the money. If the account compounds monthly, the actual amount could be a few pounds more because each month's interest adds to the base for the next month.

Now compare that to a lower AER, say 3%. The same £1,000 would grow to only £1,030 after a year. The difference adds up quickly if you keep adding funds each month. Over five years, the 6% AER could give you roughly £340 extra compared to a 3% AER, assuming no withdrawals.

Keep in mind that AER doesn’t guarantee you’ll earn that exact amount—taxes, fees, or changes in the rate can affect the final figure. Still, it’s the most reliable way to see how much interest you might earn if the rate stays the same.

When you shop for a new savings product, look for the AER and the compounding frequency. A higher AER with daily or monthly compounding is usually the best deal, as long as the account’s terms fit your needs (no high withdrawal penalties, reasonable minimum balance, etc.).

Finally, use the AER to set realistic goals. If you want to reach a specific amount in a set time, plug the AER into an online calculator and see how much you need to save each month. The clearer picture helps you stay motivated and avoid surprises.

In short, a 6% AER means your money can grow faster than many other offers, especially when the interest compounds regularly. Keep an eye on the AER, check for hidden fees, and match the product to your savings plan to make the most of that six‑percent boost.

Coventry Building Society Unveils 6% Loyalty Seasonal Saver for Existing Customers
Derek Falcone 23 April 2025 0 Comments

Coventry Building Society Unveils 6% Loyalty Seasonal Saver for Existing Customers

Coventry Building Society is offering its long-standing customers a market-leading 6% AER Loyalty Seasonal Saver account, allowing monthly deposits up to £250 over a year. The account provides flexibility with no penalty withdrawals during the winter, helping savers meet festive expenses and benefit from higher-than-average interest after the Bank of England held base rates.