In this article, we’re answering “What is a basis point?” In short, it’s a unit of measure that is used in finance and banking to reflect changes in financial instruments.
In this article, we’re going to share everything you need to know about them, including how they can impact your investments and mortgages.
This article is part of our series on banking basics, ranging from opening different types of bank accounts around the world to understanding how various aspects of the banking system operate.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- What Is a Basis Point?
- How Do Basis Points Affect Mortgage Rates?
- Frequently Asked Questions
- Do You Want Help Opening Bank Accounts?
What Is a Basis Point?
A basis point is a unit of measure in the world of finance and banking that is used to represent changes in financial instruments. One basis point is equal to one-hundredth of a percentage or 0.01% while one hundred is equal to one percent or 1.00%.
Financial instruments that are commonly tracked this way include interest rates, treasury bonds, funds, listed equities, and even real estate.
The importance of basis points comes down to the precision that they offer the person using them, allowing far more accurate depictions of changes in the price of financial instruments.
Additionally, because they are the standard unit of measurement in financial terminology, they provide a level of standardization across the industry,
Needless to say, understanding basis points is important for anyone engaging in finance. However, knowing the difference between a basis point vs a percentage point can also help the average person better understand their own finances.
This is true whether you would like to understand how to calculate them to better understand your mortgage, track interest rate changes, or know how much you are saving on your deposits.
How Do Basis Points Affect Mortgage Rates?
Because basis points are a unit of measure, they do not directly affect mortgage rates. Instead, they are a reflection of the change in mortgage rates after the change has already happened. Of course, in certain instances, they may also be used to reflect an expected change like those made by market commentators.
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Frequently Asked Questions
Below are a few of the most common questions we receive from people looking into this topic. If you have further questions you would like to ask our team, don’t hesitate to get in touch.
What Is the Price Value of a Basis Point?
The price value of a basis point refers to the change in price of a fixed-income security (like a bond) if its yield experiences a one point change. This calculation is often used for analyzing interest rate movements and making decisions from an investment and risk management perspective.
Can Basis Points Affect Savings Accounts?
Basis points do not directly affect savings accounts. Instead, they are a unit of measure that is used to describe the changes that have already taken place, which may have positively or negatively impacted the interest rate accruing against deposits in a savings account.
What is 100 Basis Points?
100 basis points is the common expression of one percentage point (1.00%) in finance and banking. If a financial instrument has increased or decreased by 100, it has increased or decreased by 1.00%.
What is 75 Basis Points?
75 basis points is the common expression of decimal seventy-five percentage points (0.75%) in finance and banking. If a financial instrument has increased or decreased by 75, it has increased or decreased by 0.75%.
How Much is 50 Basis Points?
50 basis points are the common expression of decimal fifty percentage points (0.50%) in finance and banking. If a financial instrument has increased or decreased by 50, it has increased or decreased by 0.50%.
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