What is a basis point?
One hundredth of one percent. Finance uses it so that nobody has to ask whether a 1% rise means from 5% to 6% or from 5% to 5.05%.
A basis point is 0.01%. A central bank that raises its rate from 4.25% to 4.50% has moved 25 basis points.
The unit exists to remove ambiguity. If someone says a 5% rate went up by 1%, it could mean 6% or it could mean 5.05%. Saying 100 basis points or 5 basis points leaves no doubt.
You will see it in three places: central bank decisions, bond spreads such as country risk, and fund fees. A fund charging 75 basis points takes 0.75% of your money each year.
- 1 basis point
- 0.01%
- 25 basis points
- The size of a standard central bank rate move
Explainers describe how things generally work. They are not advice for a specific project or country. See our editorial policy.