Basis Point

A basis point (abbreviated bp, bps, or spoken as bip) is one hundredth of one percentage point, equal to 0.01% or 0.0001 in decimal form. One hundred basis points make one percentage point. The unit is used throughout finance to express small differences in interest rates, yields, spreads and fees precisely.

Basis points remove a common ambiguity. If an interest rate rises from 2% to 3%, it is unclear whether a 1% increase means one percentage point or 1% of 2%, which would be 2.02%. Saying the rate rose by 100 basis points leaves no doubt.

• 1 bp = 0.01% = 0.0001
• 10 bps = 0.10%
• 25 bps = 0.25%
• 50 bps = 0.50%
• 100 bps = 1.00%

To convert a percentage into basis points, multiply by 100; to convert basis points into a percentage, divide by 100. The cost of a given number of basis points on an amount is the amount multiplied by the basis points and divided by 10,000.

Central banks usually move policy rates in steps of 25 basis points, although larger moves of 50 or 75 basis points occur when inflation or financial conditions demand it. A move in the upper bound of the federal funds rate target range from 5.25% to 5.50%, for example, is described as a 25 basis point increase. Loan pricing is often expressed as a benchmark such as SOFR plus a spread in basis points, and the shape of the yield curve is described by the basis-point difference between short and long maturities. Banks track their net interest margin in the same terms.

Payments and foreign exchange pricing involves small percentages applied to large volumes, so basis points are the natural unit. An FX markup of 50 bps above the mid-market rate means the customer's rate is 0.50% worse than the benchmark. Card interchange fees and merchant discount rates are frequently quoted in basis points, and a provider's margin in an interchange-plus contract is often stated the same way. Comparing providers on the basis of all-in cost usually means adding several basis-point components together.

Example

A business converts USD 2,000,000 into euros. Provider A charges a markup of 15 bps; provider B charges 40 bps.

• Provider A: 2,000,000 × 15 ÷ 10,000 = USD 3,000.
• Provider B: 2,000,000 × 40 ÷ 10,000 = USD 8,000.

The 25 bp difference is worth USD 5,000 on a single conversion. Expressed as 0.15% and 0.40%, the difference looks trivial; in basis points the gap is easier to see and to negotiate.

Basis points should not be confused with pips. A pip is the smallest standard price increment in a currency pair quote, typically 0.0001 for most pairs and 0.01 for pairs involving the Japanese yen. A pip is a change in the exchange rate, while a basis point is a proportion of a value. For EUR/USD at 1.1000, one pip is about 0.9 basis points of the price.

The term is also used for derivatives. The sensitivity of a bond or interest rate swap to a one basis point change in rates is called its DV01 or PV01, and it is calculated on the notional amount. In currency markets, the cross-currency basis is measured in basis points as well.

A basis point is sometimes written with the permyriad sign (‱), meaning parts per ten thousand, though this is rare in practice. Larger moves are generally stated in percentage points, and fees above a few percent are usually quoted as percentages rather than basis points.