A basis point is equal to one hundredth of one percent
Why It's Important
You have probably heard the talking heads on your favorite financial shows or news site mentioning basis points. They may have said something like "interest rates have gone down 25 basis points". 25 basis points is equal to 0.25% or a quarter of a percent. You may be thinking why use basis points? Well, usually the differences in interest rates are so small, it takes a smaller unit of measurement to describe the change.