How exactly does AER work?

Question

I am planning on opening a savings account and will be putting a fraction of my monthly salary into it, around £1000 each month.

To calculate the interest generated, as the total in the account varies throughout the year, would you look at the total generated each month?

Also, at what point does the interest get generated? Is it based on the time money has spent in the account?

RonJohn · Answer

If savings accounts in the UK are anything like US...

Interest is compounded daily, using the AER advertised that day.
A 365 or 360 year is used.
Interest start accruing the day it's deposited.
It's credited to your account (you can actually see it) on the account's statement date.
The AER of savings accounts can change daily, but usually don't.
Fixed-rate accounts do what they say on the tin: fix the AER on the account, and it's for a specific amount of time.  Getting it out is apparently harder than getting it out of the analogous US product, the CD.

How exactly does AER work?

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