The annual equivalent rate (AER) is the interest rate for a savings account or investment product that has more than one compounding period.

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Table of Contents
Annual Equivalent Rate (AER)
Understanding the AER
AER Formula
How to Calculate the AER
AER vs. Stated Interest
AER Pros and Cons Annual equivalent rate \= ( 1 \+ r n ) n − 1 where: n \= The number of compounding periods (times per year interest is paid) r \= The stated interest rate \\begin{aligned} &\\text{Annual equivalent rate}=\\left(1 + \\frac{r}{n}\\right)^n-1\\\\ &\\textbf{where:}\\\\ &n=\\text{The number of compounding periods (times per year interest is paid)}\\\\ &r = \\text{The stated interest rate}\\\\ \\end{aligned} ​Annual equivalent rate\=(1+nr​)n−1where:n\=The number of compounding periods (times per year interest is paid)r\=The stated interest rate​
To calculate AER:
1.  Divide the stated interest rate by the number of times a year that interest is paid (compounded) and add one.
2.  Raise the result to the number of times a year that interest is paid (compounded)
3. The annual equivalent rate (AER) is also known as the effective annual interest rate or the annual percentage yield (APY).
The annual equivalent rate (AER) is the actual interest rate an investment, loan, or savings account will yield after accounting for compounding. The AER reveals to investors what they can expect to return from an investment (the ROI)—the actual return of the investment based on compounding, which is more than the stated, or nominal, interest rate.
Assuming that interest is calculated—or compounded—more than once a year, the AER will be higher than the stated interest rate. Cons of AER
Investors must do the work of calculating AER themselves
AER doesn't take into account fees that may be incurred from the investment
Compounding has limitations, with the maximum possible rate being continuous compounding
AER is one of the various ways to calculate interest on interest, which is called compounding.

Annual Equivalent Rate (AER)

A Christmas club is a savings account to help people save for the holidays. Money is deposited throughout the year and withdrawn before the holidays.

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A Christmas club, also called a holiday club account, is a type of savings account in which people make routine deposits throughout the year. A Christmas club, or holiday club, account is a type of savings account designed to help people save for their holiday shopping. A Christmas club, also called a holiday club account, is a type of savings account in which people make routine deposits throughout the year. Although the branding and incentives of Christmas club—and similar—accounts may help savers stay motivated to achieve their goals and avoid debt, the accounts themselves typically do not pay particularly high interest. The point of a Christmas club account is to automate savings throughout the year in advance of the holiday season.

Christmas Club

A current account savings account is aimed at combining the features of savings and checking accounts to entice customers to keep their money in banks.

A CASA account pays no interest—or in some cases, low interest—on the current account and an above-average return on the savings portion.
The CASA is a non-term deposit, meaning it is used for the everyday banking and savings needs of the consumer. A current account savings account (CASA) is aimed at combining the features of savings and checking accounts to entice customers to keep their money in the bank. A CASA tends to be a cheaper way for a bank to raise money than issuing term deposits, such as certificates of deposit (CDs), which offer higher interest rates to the customers. Because the interest paid on the CASA deposit is lower than on a term deposit, the bank’s net interest income (NII) is higher.

Current Account Savings Account (CASA)

The deposit interest rate is the interest rate paid to deposit account holders for accounts like certificates of deposit (CD) and savings accounts.

The deposit interest rate is paid by financial institutions to deposit account holders. The fixed interest rates guaranteed with certain deposit accounts tend to be smaller compared with the variable returns of other financial vehicles._
_In the instances of certain self-directed retirement accounts, the various types of investments being made can include real estate, mutual funds, stocks, bonds, and notes._ Financial institutions encourage long-term deposits not only for the client’s benefit from the extended interest but because it offers more liquidity to the institution._
Deposit accounts are attractive places to park cash for investors who want a safe vehicle for preserving their capital, earning a small amount of fixed interest, and taking advantage of insurance such as FDIC and NCUA insurance. Deposit accounts include certificates of deposit (CD), savings accounts, and self-directed deposit retirement accounts. The fixed interest rates guaranteed with certain deposit accounts tend to be smaller compared with the more variable returns of other financial vehicles.

Deposit Interest Rate

An employee contribution plan is an employer-sponsored savings plan where employees can save a portion of each paycheck in an investment account.

An employee contribution plan is a type of employer-sponsored savings plan. In the United States, common examples of employee contribution plans include defined contribution pension plans such as the 401(k), employee stock ownership plans (ESOPs), and corporate profit-sharing plans. Unlike defined benefit plans, which provide the employee with a guaranteed future sum, the value of employee contribution plans fluctuates based on the market and other factors. Typically, employee contribution plans will offer a range of debt and equity investment options to choose from, including domestic and international mutual funds, fixed-income funds, and money market investments. In this manner, employee contribution plans effectively shift the investment risk from the employer to the employee.

Employee Contribution Plan

An Individual Development Account (IDA) is a savings account to help lower-income individuals build assets to achieve financial stability.

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An individual development account (IDA) is a type of savings account designed to help low-income individuals build assets and achieve financial stability and long-term self-sufficiency. An individual development account (IDA) is a type of savings account designed to help low-income individuals build assets and achieve financial stability and long-term self-sufficiency. An IDA will also help make savings go farther: As in a 401(k), the money a person saves in an IDA is then matched (in this case by private or public funds), increasing the total account value. Program eligibility criteria vary by program, but most require that your income be less than two times the federal poverty level, that you have income from a job, and that you attend financial literacy programs. To qualify for an IDA, an individual may have to complete free financial literacy training, which teaches subjects like money management, debt reduction, and investing.

Individual Development Account (IDA)

Joint is a legal term describing a transaction or agreement where two or more parties act in unison.

Joint is a legal term describing a transaction or agreement where two or more parties act in unison. Corporations, partnerships, limited liability companies (LLCs) and other business entities can all be involved in joint ventures, the agreements of which take into account: the number of parties involved, the scope in which the joint venture will operate, the terms of each party’s role and contribution, the ownership split, and how the joint ventures will be administered, managed and staffed. Joint, as a term, can be used in a variety of situations, including:
joint accounts, where two or more parties share a single account, such as a bank or brokerage account. Joint is used in many situations ranging from joint accounts to joint ventures. Most joint accounts have rights of survivorship, which means that if one account holder dies, the other will automatically retain rights to the account funds.

Joint

A linked savings account is a savings account that is connected to another type of account like a checking account.

A linked savings account is a savings account that is connected to another account such as a checking or negotiable order of withdrawal (NOW) account. Linked savings accounts are connected to another account such as a checking or negotiable order of withdrawal account, making it easier to transfer money between accounts. A linked savings account is a savings account that is connected to another account such as a checking or negotiable order of withdrawal (NOW) account. Linked savings accounts also allow customers to keep the majority of their funds in a savings account, which may earn more interest, moving money into the checking or NOW account as needed. Generally, linked savings accounts are held at the same bank as the customer's other accounts, making it easier to transfer funds between accounts.

Linked Savings Account

Negotiable Order of Withdrawal (NOW) Account is an interest-earning bank account. Discover more about the NOW Account here.

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NOW Accounts and Super NOW Accounts were demand deposit alternatives with a temporary holding period that could actually pay some interest. In the search to optimize returns on liquid funds, investors have several choices, including: interest-bearing checking accounts, high yield savings accounts, money market accounts, and certificates of deposit. Dodd-Frank repealed Req Q, allowing banks to pay interest on demand deposits, which basically eliminated any advantage that NOW Accounts offered. This was because Regulation Q (Reg Q) prohibited banks from paying any interest on demand deposit, checking accounts.

Negotiable Order of Withdrawal (NOW) Account

A passbook loan is a personal loan made to a savings account holder by the custodial bank using the balance of the savings account as collateral.

Table of Contents
What Is a Passbook Loan?
How a Passbook Loan Works
Advantages and Disadvantages of a Passbook Loan Another reason to use a passbook loan versus a personal loan is that you be offered a lower interest rate on a passbook loan by your bank or credit union. A passbook loan is a personal loan made to a savings account holder by the custodial bank, which uses the savings account balance as collateral. If you default on the loan, you lose your savings, which are the collateral to the loan, and that in turn, could leave you without funds for an emergency or deplete your savings, which you might have been planning to use for a downpayment, new car, or a holiday. With a passbook loan, the savings account holder continues to earn interest in the savings account, including the amount borrowed.

Passbook Loan

A savings club is a type of bank account in which the account holder makes regular contributions toward a predetermined goal.

A savings club is a type of bank account in which the account holder makes regular contributions toward a predetermined goal. Although most savings clubs are administered using bank accounts, some informal savings clubs can also be made, in which case no interest is earned on the deposits. Because their particular savings club involves saving for a vacation, it is commonly known as a vacation club account. A savings club is a type of bank account in which the account holder makes regular contributions toward a predetermined goal. A savings club is a type of bank account created to help save for a specific future expense.

Savings Club

A savings account is a deposit account held at a financial institution that provides principal security and a modest interest rate.

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Table of Contents
What Is a Savings Account? In contrast, it is much more difficult to cash in a bond, withdraw funds from a retirement account, or sell a stock than it is to take money out of your savings account, especially if that account is linked to your checking account. Beyond keeping your funds safe, savings accounts also earn interest, so it pays to keep any unneeded funds in a savings account instead of accumulating cash in your checking account, where it will likely earn little or nothing. If you're ready to shop for a new savings account, we maintain a list of the best savings account rates we can find. A savings account is an interest-bearing deposit account held at a bank or other financial institution.

Savings Account

A sweep account automatically transfers amounts over or below a certain level into a higher interest-earning investment option.

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A sweep account is a bank or brokerage account that automatically transfers amounts that exceed, or fall short of, a certain level into a higher interest-earning investment option at the close of each business day. These investment vehicles that provide higher interest rates while still offering liquidity include money market mutual funds, high-interest investment or savings accounts, and even short-term certificates with 30-, 60- or 90-day maturities for known layovers in investments.
Businesses and individuals need to keep an eye on the costs of sweep accounts, as the benefit from higher returns from investment vehicles outside the checking account can be offset by the fees charged for the account. A sweep account for a business, especially small entities that rely on daily cash flow but want to maximize earning potential on sitting cash reserves, set a minimum balance for the main checking account, over which any funds are swept into a higher-interest investment product. Sweep accounts, whether for business or personal use, provide a way to ensure money is not sitting idly in a low-interest account when it could be earning higher interest rates in better liquid cash investment vehicles. Sweep accounts, whether for business or personal use, provide a way to ensure money is not sitting idly in a low-interest account when it could be earning higher interest rates in better liquid cash investment vehicles.

Savings Accounts

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