A basis point is one hundredth of one percent. Type a figure into any field below and the others convert instantly, so 25 bps becomes 0.25%, 2.5 permille, and 0.0025 without you doing anything.
Open the section underneath and it applies the conversion to a real amount. That is where basis points stop being a unit of measurement and start being money: 25 bps sounds like nothing until you put it against a $40m loan book.
What a basis point actually is
One basis point is 0.01%, or one ten-thousandth. Written out, the family of units runs like this:
1 percent = 1 ÷ 100
1 permille = 1 ÷ 1,000
1 basis point = 1 ÷ 10,000
So 100 basis points is exactly 1%, and the mental conversion is simply moving a decimal point two places: divide bps by 100 for percent, multiply percent by 100 for bps.
Finance professionals pronounce it "bip", write it bps or bp, and use it constantly for one reason, which is not brevity.
Why the unit exists at all
Basis points exist to remove an ambiguity that percentages cannot.
Suppose a rate moves from 6% to 6.6%. You could say it rose by 0.6 percentage points, or that it rose by 10%. Both are correct and they describe the same event. Now suppose someone tells you a rate "increased by 10%" and the starting rate was 6%. Is the new rate 6.6% or 16%? The sentence does not say, and in a document about interest rates that ambiguity is expensive.
Basis points solve it by convention. A change stated in basis points is always absolute. "The rate rose 60 bps" can only mean 6% to 6.6%. "The rate rose 1,000 bps" can only mean 6% to 16%. There is no relative reading available, which is exactly the point.
This is why central bank announcements, loan pricing, fund fees, and bond spreads are all quoted in basis points rather than percentages. The unit is chosen for precision of meaning, not for convenience.
The conversions
Basis points | Percent | Permille | Decimal |
|---|---|---|---|
1 | 0.01% | 0.1‰ | 0.0001 |
10 | 0.1% | 1‰ | 0.001 |
25 | 0.25% | 2.5‰ | 0.0025 |
50 | 0.5% | 5‰ | 0.005 |
100 | 1% | 10‰ | 0.01 |
250 | 2.5% | 25‰ | 0.025 |
1,000 | 10% | 100‰ | 0.1 |
To convert basis points to percent, divide by 100. To convert percent to basis points, multiply by 100. To get the decimal, divide the basis points by 10,000.
Two worked examples
A rate change. A mortgage rate is quoted at 4.09%, described as an increase of 9 basis points over the previous week.
9 bps = 0.09%
Previous rate = 4.09% − 0.09% = 4.00%
A change applied to an amount. A position worth $65,000 rises by 1.5 basis points.
1.5 bps = 0.015% = 0.00015
Change = $65,000 × 0.00015 = $9.75
New value = $65,009.75
Trivial on $65,000. Apply the same 1.5 bps to a $2bn portfolio and it is $300,000, which is the entire reason the unit is used at that scale. Basis points are the language of businesses where the percentages are small and the amounts are enormous.
Where basis points actually appear
Central bank decisions. Rate moves are announced in basis points, almost always in increments of 25.
Loan and mortgage pricing. Margins are quoted as a spread over a reference rate, such as "SOFR plus 175 bps".
Fund and asset management fees. A 0.75% annual management fee is universally described as 75 bps.
Payments and interchange. Card processing costs are quoted in basis points plus a fixed per-transaction fee, and a few basis points of difference decides which processor a large merchant uses.
Bond spreads and credit risk. The gap between a corporate bond's yield and the government benchmark is a spread in basis points, and it is the market's price for the risk of not being repaid.
Commissions. Brokerage and transaction fees on large trades are frequently expressed in basis points of notional value.
The common thread is scale. In every one of these, a change too small to bother expressing as a percentage moves a material amount of money.
Basis points, percentage points, and percent
The three get used interchangeably and only one of them is unambiguous.
Term | What it expresses | Example |
|---|---|---|
Percent change | A relative change | 6% rising by 10% becomes 6.6% |
Percentage point | An absolute change | 6% rising by 10 percentage points becomes 16% |
Basis point | An absolute change, in hundredths of a point | 6% rising by 1,000 bps becomes 16% |
Basis points and percentage points mean the same thing. Basis points simply allow finer granularity without decimals, which is why nobody says "a quarter of a percentage point" when they can say 25 bps.
Where basis points mislead
People read them as relative. The single most common error is treating a 50 bps rise on a 5% rate as taking it to 7.5%. It takes it to 5.5%.
They make large changes sound small. A 200 bps increase in the cost of debt is a 2 percentage point move, which on a heavily leveraged balance sheet can be the difference between profitable and not. The unit is designed for precision, and it happens to be reassuring in a way the underlying number is not.
Fees quoted in bps hide their compounding. An annual fee of 75 bps sounds negligible. Charged every year against a growing balance, it is one of the largest determinants of long-run investment returns.
They are meaningless without the base. Forty basis points is $1.20 on $300 and $4,000 on $1m. Always ask what the base is before reacting to the number.
Further reading from Revenue Memo
FAQs
How do I convert basis points to percent?
Divide by 100. So 25 basis points is 0.25%, and 150 basis points is 1.5%. Going the other way, multiply the percentage by 100, so 0.75% is 75 basis points.
How much is 50 basis points?
Fifty basis points is 0.5%, or 0.005 as a decimal. What it is worth depends on the base: 50 bps of $60,000 is $300, while 50 bps of $10m is $50,000.
How much is 100 basis points?
One hundred basis points is exactly 1%. This is the conversion worth memorising, because every other one follows from it.
Can basis points be negative?
Yes. Basis points describe a change, and changes go both ways. In practice people usually say a rate fell by 25 basis points rather than that it rose by minus 25, but the two statements are identical.
What is the difference between a basis point and a percentage point?
Nothing, except granularity. One percentage point is 100 basis points. Both describe absolute changes, which is what distinguishes them from a percent change, which is relative.
Why do banks use basis points instead of percentages?
To eliminate ambiguity. Saying a rate "rose 10%" could mean it went from 6% to 6.6% or from 6% to 16%. Saying it rose 1,000 basis points can only mean the second. In documents where the difference is worth millions, that precision matters more than brevity.
How do I calculate a commission in basis points?
Multiply the transaction value by the basis points and divide by 10,000. A 30 bps commission on a $150,000 sale is $150,000 × 30 ÷ 10,000 = $450. The calculator above does this if you enter the basis points and the amount.