304c) If the interest rate is quoted as the total payable over the period (longer than one year)
305 on the initial deposit, then the AER is:
319where: r is the total interest rate payable over m years.
323d) Where interest is payable more frequently than annually, then the AER is:
330 = 1+ - 1 100
336where: n is the number of times per year that interest is to be paid
337 i is the annual rate to be paid n times per year
341The general formula set out at a) is complicated because it attempts to cater for any sort of
342deposit. The following notes aim to clarify its assumptions and application:
344 • It envisages a depositor making a series of payments (some of which may be zero)
345 into the account at annual intervals and the product provider paying or crediting
346 interest annually which may be at a different rate (possibly zero) each year.
347 • Deposits are assumed to be made at the beginning of a year and interest paid at the
349 • If deposits or interest payments are not made on anniversaries of the start date, the
350 formula can be operated using shorter periods and fractions of the annual rate(s),
351 and the answer compounded up to an annual rate using the formula at d).
352 • The interest payable in each year is the amount actually payable or to be added to
353 principal, not an accrual, so that, if paying 7% a year (simple) after 2 years, the
354 interest is 0% in year 1 and 14% in year 2.
355 • The formula treats all interest as compounded because interest paid (say) annually is
356 worth more to the depositor than interest paid only after two years. Interest paid is
357 compounded at the Gross Interest Rate to avoid the introduction of an arbitrary