Basis Points
Glossary
The vocabulary of money, in plain English. No jargon for its own sake — just the terms you need to read the fine print and hold your own at the table.
- Basis point
- One one-hundredth of one percent (0.01%). The smallest unit serious money is measured in. 100 basis points = 1%.
- Compound interest
- Interest earned on both your original money and the interest it has already earned. The engine behind long-term wealth — and long-term debt.
- Principal
- The original amount of money borrowed or invested, before any interest.
- APR
- Annual Percentage Rate — the yearly cost of borrowing, including fees. The number to compare when shopping for any loan or card.
- APY
- Annual Percentage Yield — the yearly return on savings, accounting for compounding. The number to compare when shopping for a place to keep money.
- Term
- The length of a loan or investment. A longer term usually means smaller payments but more total interest.
- Premium
- The amount you pay for insurance coverage, usually monthly or yearly.
- Deductible
- The amount you pay out of pocket before insurance starts paying.
- Depreciation
- The loss of value of an asset over time — the reason a new car is worth less the moment you drive it off the lot.
- Equity
- The portion of an asset you actually own — its value minus what you still owe on it.
- Inflation
- The gradual rise in prices that erodes what your money can buy. Money standing still loses ground.
- Net worth
- What you own minus what you owe. The single number that tracks real financial progress — not income.
- Marginal tax rate
- The tax rate on your next dollar earned — not on all of your income. A raise is never fully “taxed away.”
- Index fund
- A fund that holds a broad slice of the market at very low cost, instead of trying to pick winners.
- Liquidity
- How quickly an asset can be turned into cash without losing value.