What it is
A basis point (often abbreviated as "bp" or "bps") is a standard unit of measurement for interest rates and other financial percentages. One basis point equals 0.01%, or 1/100th of a percentage point. For instance, a change of 50 basis points means a change of 0.50%. This unit helps avoid ambiguity when discussing small changes in rates, especially in fixed-income markets, where slight shifts have significant financial implications.
In financial news, basis points are frequently used to describe changes in central bank interest rates, bond yields, or credit spreads. For example, if the Federal Reserve raises the federal funds rate by 25 basis points, it means the rate increased by 0.25%. This precise language is crucial for investors tracking monetary policy adjustments, as even small shifts can influence market sentiment, asset valuations, and the cost of borrowing for businesses and consumers.
Why it matters
Understanding basis points helps you precisely interpret news about interest rate changes and their impact on your investments and borrowing costs.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice