What are Basis Points?

A basis point is 1/100th of a percent. In other words, 1 basis point equals 0.01%; 100 basis points equals 1.00%. Basis points are often used to describe movements in financial securities, such as yields or change in price. A common example of the use of basis points in financial vocabulary is in reference to the Federal Reserve’s (Fed) interest rate policies. You might hear “the Fed raised rates by 25 basis points”, which means the Fed raised rates by 0.25%.