Basis Points (bps): What They Are and How to Convert Them
Last updated 06/09/2026 by
Ante Mazalin
Edited by
Andrew Latham
Summary:
A basis point is one hundredth of a percentage point, or 0.01%, used to describe small changes in interest rates, yields, and fees.
It gives finance a precise way to state rate moves without confusion.
- The value: One basis point equals 0.01%, so 100 basis points equal 1%.
- The shorthand: Often abbreviated as “bps” and spoken as “bips.”
- Where it is used: Interest rate changes, bond yields, loan rates, and fund fees.
- Why it matters: It removes the ambiguity of saying a rate rose “by 1 percent.”
When the Federal Reserve moves rates, headlines say “50 basis points,” not “half a percent,” for a reason. Basis points avoid a common confusion about whether a change is relative or absolute.
What does a basis point equal
A basis point is one hundredth of one percent, written as 0.01%. That means 100 basis points add up to a full percentage point.
The term is abbreviated “bps” and is used because it states rate changes exactly. According to the Federal Reserve, the central bank communicates changes to its target rate in terms of percentage points and their fractions, which basis points express cleanly.
| Basis points | Percentage | Decimal |
|---|---|---|
| 1 bp | 0.01% | 0.0001 |
| 25 bps | 0.25% | 0.0025 |
| 50 bps | 0.50% | 0.0050 |
| 100 bps | 1.00% | 0.0100 |
To convert basis points to a percentage, divide by 100; to convert a percentage to basis points, multiply by 100.
Why does finance use basis points instead of percentages
Basis points exist to remove ambiguity when a rate that is already a percentage changes. Saying a 5% rate “rose 1 percent” could mean it went to 6% or to 5.05%, but “rose 100 basis points” can only mean 6%.
This precision matters most for interest rates, where small differences move large sums of money. A basis point states the exact change without the relative-versus-absolute confusion.
Good to know: A move “from 5% to 6%” is a 100 basis point increase, even though it is a 20% relative jump in the rate. Basis points always describe the absolute change in percentage points.
How basis points affect real costs
Even a handful of basis points can add up over the life of a large loan or investment. On a fixed-rate mortgage, a 25 basis point change in the rate shifts the monthly payment and total interest.
- Mortgages: A 25 bps rate change alters monthly payments and lifetime interest on a large balance.
- Bonds: Yields are quoted and compared in basis points because moves are small.
- Fund fees: An expense ratio of 50 bps means 0.50% of assets charged each year.
Because fees compound over years, a difference of even 20 basis points in an expense ratio can be meaningful for long-term investors.
Pro Tip
When comparing funds, translate the expense ratio into basis points to spot the real gap. A fund charging 75 bps costs three times as much as one charging 25 bps, a difference that quietly compounds against your returns over decades.
How to convert basis points
- Basis points to percent: Divide the basis points by 100, so 75 bps becomes 0.75%.
- Percent to basis points: Multiply the percentage by 100, so 0.40% becomes 40 bps.
- Basis points to decimal: Divide by 10,000, so 50 bps becomes 0.0050.
- Apply to a balance: Multiply the decimal by the dollar amount to find the cost.
- Compare options: State competing rates or fees in the same units before deciding.
Keeping all figures in the same units, whether percentages or basis points, prevents costly miscalculations.
Related reading on rates and fees
- Interest rate: the figure basis points most often describe.
- Expense ratio: a fund fee commonly quoted in basis points.
- Bond: a security whose yield is quoted and compared in basis points.
- Annual percentage rate: a borrowing cost that small basis point changes shift.
Frequently asked questions
What is a basis point?
A basis point is one hundredth of a percentage point, equal to 0.01%. It is used to describe small changes in interest rates, yields, and fees.
How many basis points are in 1 percent?
There are 100 basis points in 1 percent. So a rate that rises a full percentage point has risen 100 basis points.
Why do people use basis points instead of percentages?
Basis points remove the confusion of changing a number that is already a percentage. Saying a rate rose 50 basis points is clearer than saying it rose half a percent, which could be read as relative or absolute.
How do I convert basis points to a percentage?
Divide the number of basis points by 100. For example, 25 basis points equals 0.25%, and 150 basis points equals 1.5%.
What does a 25 basis point rate hike mean?
It means the rate increased by 0.25 percentage points. A rate of 5.00% would become 5.25% after a 25 basis point hike.
Key takeaways
- A basis point equals 0.01%, and 100 basis points equal 1%.
- It is abbreviated “bps” and used for interest rates, yields, and fees.
- Basis points remove the ambiguity of describing a change to a percentage.
- To convert, divide basis points by 100 for a percentage or by 10,000 for a decimal.
- Small basis point differences in rates and fees compound into real money over time.
Comparing rates and fees in basis points helps you judge the true cost of a financial product. You can compare investment and brokerage accounts to weigh expense ratios side by side.
Table of Contents