A basis point, abbreviated bp or bps, equals 0.01 percentage point. One hundred basis points equal 1 percentage point.
How it works
Basis points avoid ambiguity when discussing interest rates. If a rate rises from 4.00% to 4.25%, it rose by 25 basis points, not by 25 percent.
The same unit is used for policy-rate moves, bond-yield changes, credit spreads, fees, and other percentage-based financial measures.
Why it matters
A few basis points can matter in large bond positions, mortgages, and institutional financing. In central-bank news, the difference between 10, 25, and 50 basis points often carries very different policy meaning.
Using basis points also prevents a common language error: a move from 2% to 3% is a 1-percentage-point increase, but a 50% increase relative to the starting rate.
A simple market example
If a central bank cuts its policy rate from 3.75% to 3.50%, the cut is 25 basis points. If a 10-year bond yield falls from 4.20% to 4.12%, it fell 8 basis points.
Common mistakes
Confusing basis points with percent changes. A 25-bp move is 0.25 percentage point.
Writing rates rose 0.25% when you mean 0.25 percentage point. In finance, 25 bp is clearer.
Frequently asked questions
How many basis points are in 1 percentage point?
100 basis points.
What is 50 basis points?
0.50 percentage point.
Why do traders use basis points?
Because rate and yield moves are often small, and basis points describe them precisely without confusion.
Educational content only. Definitions describe common market usage and may vary by jurisdiction, instrument, or institution.