Compound Interest & AER Explained

Compound interest explained

Regular long-term saving brings a bonus called compound interest. In other words, your interest earns its own interest.

Just imagine you saved £100 per month for 15 years. Without interest, this would give you an £18,000 pot of cash. But with interest compounded monthly at the rate of 6%, in 15 years, that would be worth £29,082.

Time passed 0% interest (£) 4% interest (£) 6% interest (£) 8% interest (£)
5 years 6000 6,623 6,977 7,355
10 years 12,000 14,694 16,388 18,335
15 years 18,000 24,529 29,082 34,727
20 years 24,000 36,513 46,204 59,196
25 years 30,000 51,117 69,299 95,723
30 years 36,000 68,912 100,452 150,252
Total interest after 30 yrs 0 31,912 64,452 114,252

Approximate value of regular savings of £100 per month over time with compound interest.

AER explained

AER stands for Annual Equivalent Rate and is used by savers to compare the interest you can expect to earn on different savings account funds. The percentage of interest is rolled up and paid at the end of each year. AERs must be published on all advertisements. Note, the quoted rates and AER can vary.

 

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