Basis Points (BPS) is a unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%. In decimal form, one basis point appears as 0.0001 (0.01/100). Basis points are used to show the change in the value.How do basis points work?Basis points are often used when discussing changes in interest rates. For example, if the Federal Reserve announces that they are going to increase the federal funds rate by 25 basis points, this means that they are increasing the rate from 0.25% to 0.50%.What is the difference between a percentage and a basis point?The main difference between a percentage and a basis point is that a percentage represents a change in value while a basis point represents a change in percentage points. For example, if the interest rate on your savings account goes from 2% to 3%, this would be a 100% increase (or 1 percentage point). However, if the interest rate on your savings account goes from 2% to 2.5%, this would be a 25 basis point increase (or 0.25%).
