Basis Point.

In plain English

A basis point is one one-hundredth of a percentage point, so 100 basis points equal 1 percent. Finance people use it to avoid confusion when they talk about rate changes. Saying a rate rose 50 basis points is clearer than saying it rose 0.5 percent, because nobody has to guess whether you meant half a point or half of the current rate. You will hear it shortened to bps, pronounced bips.

01Why it matters

When the Federal Reserve moves rates by 25 basis points, it changes what you pay on a mortgage, a car loan, or a credit card, so knowing the unit tells you how big the move really is.

02The math, step by step

If a savings account pays 4.00 percent and the bank raises it by 25 basis points, the new rate is 4.25 percent. On a 30,000 dollar balance, that 0.25 percent difference is about 75 dollars more interest in a year.

03What this is NOT

04Receipts

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