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The compound percentages could significantly impact the growth of an investment over time, as you will see in the example below. The AER is an excellent option to consider when taking a loan for those struggling to make accurate financial decisions.

When looking into the gross interest rate, don’t make the mistake of believing the gross interest rate takes into account other charges that may apply.However, the actual AER will be lower, and you won’t see the true potential of an investment account before the fees are applied.

Now that you know how to calculate AER, you may be wondering when it’s appropriate to use the formula. Don’t let this seemingly complicated formula scare you if you’re trying to calculate your AER for the first time. These products rely on the power of compound interest to grow over time, meaning you should opt for one that offers a high AER.

Exponential notation (e-notation), is a way of expressing numbers that are too large or too small to be conveniently written in decimal form.

That being the case, you should always check the terms and conditions of any product before you invest, as this will tell you how often interest is compounded. For example, if you’re considering a five-year certificate of deposit (CD) with an interest rate of 12%, you would use the AER formula to determine how much interest you would earn over the five years.To convert a decimal number to scientific notation, move the decimal point to the left or right so that there is only one non-zero digit before it. So, the next time you’re on the lookout for new investment products, remember what you’ve learned today about the AER calculation.