What a lot of times we have approached a Bank to be interested by the yield that would leave our money to us in a certain time and they have answered us that the type was of the Y a % TAE or that it had an interest rate of and %! Since a lot of care because the same is not TAE that the nominal interest rate.
Always, the ideal thing to know the yield that we can obtain in case of deposit, or the type that we are going to pay in case of loans, it is to abide by TAE who includes, in addition to the interest rate the commissions and the term of the operation. It turns out to be much more real and exact than the nominal interest rate, that it does not include these variables, and precisely that's why, from the year 1990, the Spanish Bank TAE has to all the Financial institutions to include this index in all his offers and operations in accordance with the Law that regulates the “Transparence in the operations and the protection to the client”.
What is TAE?
TAE is the Annual Valuation of Equivalence, also known as Effective Annual Valuation, and this is what is the result of applying to an operation a formula that it includes, as we have said, the nominal interest rate, the commissions and the term of the operation, and one devotes himself in financial products destined at saving so much, as in loans and credits. The proper Spanish Bank offers us the possibility of calculating TAE of a loan on its own web page: calculation of TAE.
TAE in the saving products
He gathers the yield that really we are going to get for our money and it includes all the liquidations of payment that are doing to us adelantadamente.
TAE in the loans
In addition to bearing in mind the term, TAE includes so much the commissions of opening like that of early cancellation. Nevertheless, at the time of there compares TAE of different operations of loans it is necessary to bear in mind that they can only be compared in case of loans with the same term. Loans must neither be compared to variable interest with loans to fixed interest, of course nor compare TAE of personal loans with those of mortgage loans, to the being different the commissions of one and other.
Calculation of TAE
The formula is the following one:
r = nominal interest rate of the period that talks each other
f = frequency of cashing or payment
Let's put an example so that we see the difference between TAE and nominal interest:
If we invest 100 € in a monthly deposit and they say to us that they give to us an annual TAE of 7 % will prove that really a month, they will be giving to us:
Namely the annual nominal interest rate is of 6,785 % what it means, that a month, they will give to us
0,06785/12 = 0,005654; that is to say, monthly 0,5654 % will be paid to us really
Conclusions
Whenever you begin a financial institution to request information about profitability of the deposits or of the loans in case queráis to ask for money, take siemrpe like reference to compare offers of one and another bank with TAE.
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