Basis Points

A basis point is one hundredth of a percentage point: 1 basis point equals 0.01 percent, and 100 basis points equal 1 percent. The unit exists to eliminate ambiguity when discussing small changes in rates, yields, and fees, where the difference between a percent and a percentage point is costly to confuse.

Why it matters

Central bank decisions are announced in basis points, with a typical Federal Reserve move of 25 and aggressive ones of 75, as seen repeatedly in 2022. Bond yields, mortgage spreads, and fund fees are all quoted the same way. Small numbers of basis points compound into large sums: on a 100,000 dollar portfolio, a fee difference of 50 basis points costs 500 dollars every year, and over 30 years of compounding the drag can consume a double-digit share of the final balance.

Fluency in the unit is also a defense against marketing, since a fee increase from 0.2 percent to 0.3 percent sounds trivial until it is recognized as a 50 percent price hike.

In the gold vs bitcoin debate

Basis points are the language of the ETF fee war between the assets. SPDR Gold Shares charges 40 basis points a year, cheaper gold funds charge as little as 10, and the large US spot bitcoin ETFs launched in 2024 clustered around 19 to 25. Self-custody of either asset carries no annual basis points at all, only upfront costs, which over decades is one of the quietly strongest arguments for holding the asset itself rather than a wrapper.