Definition
One hundredth of a percentage point: 100 basis points equal 1.00%. Finance uses the unit to discuss rates and fees precisely, so a move from 6.25% to 6.75% is 50 basis points.
Why it matters
Basis points make small-sounding differences visible, and small differences compound. A fee gap of a few dozen basis points on a retirement portfolio quietly consumes tens of thousands of dollars over a career.
Example
Two index funds track the same market, one charging 0.03% and one 0.50%: a 47 basis point gap. On a $100,000 balance that is $470 every year, before compounding goes to work on the difference.
Put it into practice
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.