Annuity Cost Basis And Basis Points

Shawn Plummer

CEO, The Annuity Expert

What are Basis Points?

Definition

Basis Points (BPS) are a unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument. One basis point is equal to 0.01% or 1/100th of a percent.

Use in Finance

Basis points are commonly used for:

  1. Interest Rates: To describe changes in interest rates. For example, if a rate increases from 2% to 2.25%, it has increased by 25 basis points.
  2. Investment Fees: To express fees or spreads in investment products.
  3. Bond Yields: To indicate changes in bond yields.

Examples

  • If a loan’s interest rate goes from 4.5% to 4.75%, it has increased by 25 basis points.
  • An investment firm might charge a fee of 50 basis points on a particular mutual fund.

Basis Points Conversion

Basis PointsPercentageDecimal
1 BPS0.01%0.0001
10 BPS0.10%0.0010
50 BPS0.50%0.0050
100 BPS1.00%0.0100
250 BPS2.50%0.0250

Conclusion

Understanding basis points is crucial in finance for precise communication about interest rates, investment costs, and yield changes. They provide a clear and standard way to discuss small changes that can have significant impacts. Contact us today for a free quote.

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Shawn Plummer

CEO, The Annuity Expert

Shawn Plummer is a licensed financial professional, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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