Basis Points

A basis point is a unit of measurement equal to 0.01 percentage point, used throughout bond markets, monetary policy, and lending to describe small, precise interest rate changes. It's the standard way finance professionals communicate rate moves, since 100 basis points make up exactly 1 percentage point, giving a finer, less ambiguous resolution than describing changes as fractional percentages.

Central bank policy rate changes are almost universally reported in basis points, a rate cut of "25 basis points" is far clearer and more standard in financial communication than "a quarter of a percentage point," even though they describe the identical change.

Basis Points = Percentage Point Change × 100

Percentage Point Change = Basis Points / 100

The Federal Reserve raises its target rate from 5.00% to 5.50%.

• Percentage point change: 5.50% − 5.00% = 0.50 percentage points
• Basis points: 0.50 × 100 = 50 basis points

News coverage would report this as "the Fed raised rates by 50 basis points," the standard phrasing in financial media for this kind of move.

• 100 basis points equal exactly 1 percentage point. This fixed conversion makes basis points a precise, unambiguous subdivision rather than an approximation.
• The standard unit for describing rate changes in bond and lending markets. Central bank decisions, mortgage rate movements, and bond yield changes are almost always reported in basis points rather than raw percentages.
• Small basis point moves can mean real dollar amounts on large positions. A 25 bp change sounds tiny in isolation but can represent significant money on a large loan portfolio or bond holding.
• "Bips" is the common spoken pronunciation. This verbal shorthand is standard jargon in trading floors, banking, and financial media.
• Distinct from, but mathematically related to, percentage points. Percentage points are the whole-unit version, basis points are the same concept at 100x finer resolution.