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What is a basis point?

A basis point is a hundredth (1/100) of a percentage point. Expressed another way, one percentage point is equal to 100 basis points. This means that if an interest rate drops by 1/2 of a percentage point (such as from 4% to 3.5%), the drop is 50 basis points. If an interest rate increases from 3.75% to 3.90%, the increase is 15 basis points.