basis point
One hundredth of a percent; a unit for measuring small interest rate changes.
A basis point is a standard unit used to describe very small percentage changes, especially in interest rates and bond yields. One basis point equals 0.01%, so 100 basis points equals 1%. For example, if the Federal Reserve raises rates by 25 basis points, that’s a 0.25% increase.
The term exists because interest rates often move in small increments, and saying “a quarter of a percent” is awkward. Using basis points instead makes financial communication clearer and less prone to confusion. When you see headlines about rate hikes or central bank decisions, basis points tell you the exact magnitude of the change. Understanding this unit helps you gauge whether a rate move is significant or minor.
Written once as a plain-English reference, not as advice. Nothing here is a recommendation to buy or sell anything.