Managing my money
Managing my money

Start this free course now. Just create an account and sign in. Enrol and complete the course for a free statement of participation or digital badge if available.

Free course

Managing my money

5.2.2 Spot the highest Annual Equivalent Rate (AER)

This quiz tests your ability to spot the highest Annual Equivalent Rate (AER).

Activity 1

Suppose that a savings account advertises an annual interest rate of 5%, with interest payable either daily, weekly, monthly or annually.

Which account will have the highest AER?









The correct answer is a.


Well done. Daily is the correct answer. The more frequent the payment, the more compounding of interest there will be. Therefore, annual 5% interest paid weekly will have a higher AER than 5% paid monthly, which in turn will have a higher AER than 5% paid quarterly. The table here shows AERs for each period.


Table 3 AER for a range of interest payment periods

Advertised rate5%
Period rateAER

Take your learning further

Making the decision to study can be a big step, which is why you'll want a trusted University. The Open University has 50 years’ experience delivering flexible learning and 170,000 students are studying with us right now. Take a look at all Open University courses.

If you are new to University-level study, we offer two introductory routes to our qualifications. You could either choose to start with an Access module, or a module which allows you to count your previous learning towards an Open University qualification. Read our guide on Where to take your learning next for more information.

Not ready for formal University study? Then browse over 1000 free courses on OpenLearn and sign up to our newsletter to hear about new free courses as they are released.

Every year, thousands of students decide to study with The Open University. With over 120 qualifications, we’ve got the right course for you.

Request an Open University prospectus371