What Are Basis Points (BPS)?
A basis point (BPS, bps, or bp) equals 1/100th of 1 percent (0.01%). Basis points are the standard unit for expressing small changes in interest rates, bond yields, mortgage rates, and financial fees. The Federal Reserve, central banks worldwide, and financial professionals use basis points to describe rate changes precisely and unambiguously.
1 BPS = 0.01% = 0.0001 decimal
BPS → %: divide by 100 | % → BPS: multiply by 100 | BPS → decimal: divide by 10,000
Basis Points Conversion Table
| Basis Points | Percentage | Decimal | Common Context |
|---|---|---|---|
| 1 bps | 0.01% | 0.0001 | Smallest bond market increment |
| 5 bps | 0.05% | 0.0005 | Minor mortgage repricing |
| 25 bps | 0.25% | 0.0025 | Standard Fed rate change (quarter point) |
| 50 bps | 0.50% | 0.005 | Half-point Fed cut (e.g. Sept 2024) |
| 75 bps | 0.75% | 0.0075 | Aggressive Fed hike (e.g. June 2022) |
| 100 bps | 1.00% | 0.01 | One full percentage point |
| 200 bps | 2.00% | 0.02 | Large spread or rate gap |
| 500 bps | 5.00% | 0.05 | High-yield bond spreads |
Federal Reserve Rate Changes in Basis Points
| Move Type | BPS | % Change | Real Example |
|---|---|---|---|
| Quarter-point | 25 bps | 0.25% | Most common Fed move — standard increment |
| Half-point | 50 bps | 0.50% | March 2020 COVID emergency cut; September 2024 cut |
| Three-quarter point | 75 bps | 0.75% | June, July, September, November 2022 inflation hikes |
| 100 bps (rare) | 100 bps | 1.00% | Not used by modern Fed at a single meeting |
Basis Points in Mortgages — Dollar Impact
| Rate Change | BPS | $400K Mortgage Monthly | 30-Year Total Savings |
|---|---|---|---|
| 6.50% → 6.75% | +25 bps | +$67/month more | +$24,120 more cost |
| 7.00% → 6.50% | −50 bps | −$133/month saved | −$47,880 saved |
| 7.50% → 6.50% | −100 bps | −$265/month saved | −$95,400 saved |
| 8.00% → 6.00% | −200 bps | −$530/month saved | −$190,800 saved |
Why Finance Uses Basis Points Instead of Percentages
Basis points eliminate a critical source of ambiguity. "Interest rates increased by 1%" is unclear — does it mean from 5% to 5.05% (relative 1%) or from 5% to 6% (absolute 1 percentage point)? "Rates increased by 100 basis points" is unambiguous — the rate moved exactly 1 full percentage point. On large bond portfolios, 1 basis point represents $10,000 per $100 million in notional value — making precision to 0.01% commercially significant.