Basis point (bps)

A basis point is a unit of measurement equal to one hundredth of one percent, or 0.01 percent. One hundred basis points equal 1 percent. The term is often shortened to bps and spoken as "bips."

Basis points give a precise way to describe small changes in interest rates, yields, and other percentages. Saying a rate rose by 25 basis points is clearer than saying it rose by 0.25 percent, because it avoids confusion between a change measured in percentage points and a change measured as a percent of the original figure.

The unit is common in banking, bond markets, and lending. Central banks, for example, often describe rate decisions in basis points. Spreads, the difference between two rates, are also quoted this way. A basis point is only a unit of measure. It carries no rate, return, or value on its own.