Move the decimal two places
One basis point is 0.01%, or 1/10,000. So 100 basis points make one percentage point, and converting either way is just a shift of the decimal two places. Finance uses the unit because it works with tiny rate changes daily, where the words "percent" and "percentage point" get muddled.
Basis points to percent
| Basis points | Percent | Context |
|---|---|---|
| 1 bp | 0.01% | Smallest quoted move |
| 10 bp | 0.10% | |
| 25 bp | 0.25% | A typical Fed step |
| 50 bp | 0.50% | A large single move |
| 100 bp | 1.00% | One percentage point |
| 200 bp | 2.00% | A common bond spread |
| 500 bp | 5.00% |
Each basis point on a loan is worth the loan amount times 0.0001. On a $1,000,000 loan that is $100 a year per basis point.
The mistake that actually costs money
- bp is not a percentage point. A 1 bp rise is 0.01%, not 1%. Reading 25 bp as 25% is the classic slip.
- Small doesn't mean nothing. On a $5,000,000 loan, 50 basis points is $25,000 a year. On a $300,000 mortgage, 25 bp is roughly $50 a month.
- Not the same as discount points. A mortgage discount point is 1% of the loan you pay upfront; a basis point is 0.01% of a rate. Related terms, different things.
Common questions
What is a basis point?
A basis point is one hundredth of a percent, or 0.01%. There are 100 basis points in one percentage point.
How do I convert basis points to a percent?
Divide by 100. So 50 basis points is 0.50%, and 250 basis points is 2.50%. To go the other way, multiply the percent by 100.
Why do banks and the Fed talk in basis points instead of percent?
It removes ambiguity. Saying a rate rose 0.25% could mean 0.25 percentage points or a 0.25% relative change. Saying it rose 25 basis points can only mean one thing.
What does 100 basis points over Treasuries mean?
It means a bond yields one full percentage point more than a government bond of the same maturity. A 100 bp spread on a 4% Treasury implies a 5% yield.
