A basis point (abbreviated as bp or bps for plural) is a unit of measurement used in finance to describe percentage changes in interest rates, bond yields, or other financial instruments. One basis point equals one-hundredth of a percentage point, or 0.01%. Therefore, 100 basis points equal 1 percentage point. For example, if the Federal Reserve raises interest rates by 25 basis points, that means rates increased by 0.25%.

The term "basis point" exists to eliminate ambiguity when discussing percentage changes. If an interest rate moves from 5% to 6%, saying it "increased by 1%" could be confusing—does that mean 1 percentage point (5% to 6%) or a 1% relative increase (which would be 5% to 5.05%)? Saying "100 basis points" provides absolute clarity. Basis points are commonly used when discussing interest rates, bond yields, equity indexes, credit spreads, and differences in expense ratios between funds. The precision is crucial in finance, where seemingly small rate differences can translate into millions of dollars in large transactions or institutional portfolios.