A unit of measurement equal to one hundredth of one percent, written as 0.01%. Basis points are commonly used in finance to describe small interest rate changes without using decimals. When people refer to rate changes, they use basis points to be precise and avoid confusion.
If a bond's interest rate increases from 3.50% to 3.75%, that increase is 25 basis points. When the Federal Reserve announces a rate increase of 50 basis points, that means the rate is going up by 0.50 percentage points. Using basis points makes it easier to discuss small but important changes in interest rates.
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