What is a basis point defined as?

A basis point is defined as 1/100 of 1%, which equates to 0.01%. This measurement is commonly used in finance to describe changes in interest rates, percentages, or other financial metrics that are often expressed in terms of percentage points. Using basis points allows for more precise communication and reduces the potential for misinterpretation when discussing small changes. For example, if an interest rate changes from 2.00% to 2.25%, that move can be described as an increase of 25 basis points, making it clear how significant the change is without relying on fractions or decimals that might confuse the audience.