Basis Point: One Hundredth of One Percent

A basis point, usually shortened to bp or bps, is one hundredth of one percent:

Finance professionals use basis points because they remove ambiguity. Saying a rate rose “by 1%” could mean it rose from 5% to 6% or it rose 1% of 5%. Saying it rose by 100 basis points means the change was exactly 1.00 percentage point.

Why Basis Points Matter

Basis points are used constantly in:

• central-bank announcements
• bond yield moves
• mortgage and loan pricing
• credit spreads
• management and advisory fees

Small changes matter. A 25-bp move in borrowing cost can materially change a bond price, a company’s interest expense, or the affordability of a mortgage.

Quick Conversion Rules

• 1 bp = 0.01%
• 10 bps = 0.10%
• 25 bps = 0.25%
• 50 bps = 0.50%
• 100 bps = 1.00%

If rates are written as percentages, convert the difference to basis points with:

If rates are written in decimal form, multiply by 10,000 instead.

Worked Example

Suppose a bond yield rises from 3.82% to 4.07%.

• Percentage-point change = 4.07% - 3.82% = 0.25%
• Basis-point change = 0.25 x 100 = 25 bps

That is why market commentary would say the yield moved up 25 basis points.

Scenario-Based Sample Question

A lender increases a floating-rate business loan from 6.15% to 6.90% after a policy decision.

Question: By how many basis points did the loan rate increase?

Answer: 75 basis points.

Explanation: The rate increased by 0.75 percentage points. Since 1 percentage point equals 100 basis points, 0.75 percentage points equals 75 basis points.

Related Terms

• Percentage Points: The arithmetic difference between two percentages.
• Spread: The gap between two quoted rates, yields, or prices.
• Coupon Rate: The stated annual interest rate paid by a bond.
• Yield to Maturity (YTM): The total annualized return implied by holding a bond to maturity.

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