Basis Point

Meaning:

A basis point (bps) is a way to measure small changes in interest rates or percentages. One basis point is equal to 0.01% (one-hundredth of a percent).

Example:

If the interest rate goes from 6.50% to 6.75%, it has increased by 25 basis points.

How to understand basis points:

Basis points help us talk about small changes in money matters clearly.

Instead of saying “0.25%,” we can say “25 bps,” which is easier to understand.

Importance of Basis Points:

They help avoid confusion when discussing interest rates.

They ensure everyone understands changes in money clearly.