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What Are Basis Points? Definition, How to Use and How to Calculate
A basis point or bp is equivalent to 1/100 of a percent. Use it when you want to be precise in communicating changes in percentages.
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A basis point is one hundredth of a percent, so 100 basis points is equivalent to 1%. “Basis point” is sometimes abbreviated to “bp” and “basis points” to “bps.”
When are basis points used?
Basis points are often used to measure a difference in percentages. You’ll often find them in news coverage or conversations around financial topics, such as changes in interest rates, and political polls and in scientific data.
That’s because they are helpful in calculating and communicating precise figures. Measuring with basis points helps prevent ambiguity and inaccuracy.
For example, if you’re discussing an interest rate that is currently 5%, and you say it’s expected to increase 10% next month, that increase could be interpreted differently.
Someone could interpret the new rate to be 15% (if they simply added the two figures together: 5% + 10% = 15%). Someone else could interpret the new rate to be 5.5% (if they took 10% of 5% and added that number to the current rate of 5%). But, if you say instead that the 5% interest rate is expected to increase 1,000 basis points, then it’s clear you mean that the new rate will be 15% (since 1,000 basis points = 10%).
In the world of personal finance, you may hear basis points mentioned in relation to:
4.60%SoFi members with Direct Deposit or $5,000 or more in Qualifying Deposits during the 30-Day Evaluation Period can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. Members without either Direct Deposit or Qualifying Deposits, during the 30-Day Evaluation Period will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
4.80%1.00% APY for <$10k balance; 4.00% APY for $10k to <$50k balance; 4.50% APY for $50k to <$250k; 4.80% APY for $250k+ balance
Min. balance for APY
$250,000
These cash accounts combine services and features similar to checking, savings and/or investment accounts in one product. Cash management accounts are typically offered by non-bank financial institutions.
These cash accounts combine services and features similar to checking, savings and/or investment accounts in one product. Cash management accounts are typically offered by non-bank financial institutions.
5.50%*Current promotional rate; annual percentage yield (variable) is 5.50% as of 4/2/24, plus a .50% boost available as a special offer with qualifying deposit. Terms apply; if the base APY increases or decreases, you’ll get the .75% boost on the updated rate. Cash Reserve is only available to clients of Betterment LLC, which is not a bank; cash transfers to program banks conducted through clients’ brokerage accounts at Betterment Securities.
Min. balance for APY
$0
CDs (certificates of deposit) are a type of savings account with a fixed rate and term, and usually have higher interest rates than regular savings accounts.
CDs (certificates of deposit) are a type of savings account with a fixed rate and term, and usually have higher interest rates than regular savings accounts.
5.30%The annual percentage yield is effective as of Wednesday, July 24, 2024. APY is a fixed rate and a $1,000 minimum balance is required. Bask Bank will pay this rate and APY through your CD maturity date. Fees could reduce the earnings on your account, and an early withdrawal penalty may be imposed for early withdrawal. If your CD is not funded with at least $1,000 within 10 business days after the date the account is opened, it will automatically be closed. Read the full terms here: https://www.baskbank.com/terms-and-disclosures.pdf