What are basis points, bps or “bips” in finance and investing?
Basis points are a finance way for saying percentages or percentage points. For most of us saying “basis points” is really a useless term and just makes finance more confusing.
However, once you can get your head around the meaning of it, it’s pretty straightforward.
What Are They Used For?
Basis points and percentages are often used to quote:
- Interest rates (e.g. on a deposit or loan from a bank), abd
- Returns (e.g. investing returns)
This table explains basis points to percentages:
How to convert from basis points to a percentage
If you want to convert, for example, 10 basis points to percentages, simply divide the number of basis points by 100 and put a ‘%’ symbol behind the number.
e.g. 10/100 = 0.1%.
What is a ‘Bip’?
A ‘bip’ is just one basis point.
For example, Joey says to you, “ABC managed fund rose 1 ‘bip’ in January”. That means the fund rose 0.01% or 1 basis point.
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