Basis Point

A basis point is a unit of measurement used in finance to describe the percentage change in interest rates, bond yields, or other financial metrics. One basis point is equal to 0.01% (1/100th of a percent). Basis points are commonly used to express changes in interest rates or bond yields because they provide a clear and precise way to describe small changes without ambiguity. For example, if an interest rate increases from 2.50% to 2.75%, that is a 25 basis point increase.

Example

If a central bank raises its benchmark interest rate from 1.00% to 1.25%, this is described as an increase of 25 basis points.