What Is a Basis Point?

By Kristi Waterworth – Updated Apr 16, 2025 at 11:40 PM

Key Points

One basis point represents a 0.01% change in interest rates, improving precision in reporting.
Basis points clarify exact changes in rates, avoiding confusion from percentage rounding.
Using basis points helps investors understand precise impacts on investment returns.

If you've been looking at the changes in interest rates, especially for financial instruments, you may have encountered the basis point. Often abbreviated as "bps," it's a common term that you should become familiar with before buying securities.

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Depiction of interest rates with dollar bill and blocks with up and down arrows and percent symbol. — Image source: Getty Images.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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