Basis point

Definition

Basis point in plain English

A basis point is just a tiny, precise way to talk about percentages so nobody gets confused. One basis point equals one hundredth of a percent, so 100 basis points make up a full 1%. Finance people use it because saying 'rates rose 25 basis points' is clearer than 'rates rose a quarter of one percent' — there's no ambiguity about whether you meant a quarter of a percent or a 25% jump. It's like measuring in millimeters instead of vague 'small amounts' when precision really counts, such as with interest rates and loan pricing.

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• Coupon rate
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Related Principles of Finance terms

• Accrued interest
• Allocation effect
• Basis
• Benchmark
• Bond-equivalent yield (BEY)
• Bootstrapping
• Callable bond
• Clean price
• Comparable company analysis (comps)
• Control premium