Legal Definitions - basis point

A basis point is a unit of measurement used in finance to indicate a change in the interest rate of a financial instrument. It is equal to 1/100th of 1% or 0.01%. For example, if the interest rate on a loan increases by 25 basis points, it means that the interest rate has increased by 0.25%.

Basis points are commonly used to denote the difference between two interest rates. For instance, if the interest rate on a savings account is 2.5% and the interest rate on a mortgage is 4.5%, the difference between the two rates is 200 basis points (4.5% - 2.5% = 2%, which is equal to 200 basis points).

Overall, basis points are a useful tool for measuring changes in interest rates and comparing different financial instruments.