Basis points (bps) are a common measure for interest rates and fund costs. One basis point is 1/100th of 1%. In other words, it’s 0.01% or .0001.
An interest rate change of 1% is 100 basis points. So, if an interest rate went from 4% to 4.25%, it went up by 25bps.
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“The word basis in the term basis point comes from the base move between two percentages, or the spread between two interest rates,” per . “Since the changes recorded are usually narrow, and because small changes can have outsized outcomes, the basis is a fraction of a percent.”
Retail investors most frequently encounter basis points when discussing mortgage interest rates, bond yields and an investment fund’s total expense ratio.