Basis points (BPS) is the common term for 1/100th of 1 percent or 0.01%.  This unit might not seem worth naming, but in bond markets for example, this is the unit for measuring daily price movements and credit spreads – i.e. the interest rate premium charged to a company because it is a weaker credit risk than the Government.  You cannot read the financial press without tripping over basis points.


What are Basis Points?

A basis point (BPS) is equivalent to 1/100th of 1 percent or 0.01%. For instance, if an interest rate shifts from 5.00% to 5.25%, it has risen by 25 basis points.


Basis Point to Percentage Conversion

Translating between basis points and percentage is a direct process:

  • 1% = 100 basis points
  • 0.01% = 1 basis point


To morph basis points into percentage, just divide by 100:

  • 25 BPS = 25/100 = 0.25%
  • 50 BPS = 50/100 = 0.50%


To switch a percentage to basis points, multiply by 100:

  • 0.50% = 0.50 * 100 = 50 BPS
  • 1.25% = 1.25 * 100 = 125 BPS


Uses of Basis Points in Financial Markets

Basis points are the standard unit of measurement in lots of financial markets:

  • Pretty much anything to do with interest rates, bond yields, or lending rates. For example, if a bank elevates its prime rate from 4.50% to 4.75%, it increased rates by 25 BPS.
  • Denoting bid-ask spreads on bonds and other fixed-income securities. A bid-ask spread of 5 BPS suggests a highly liquid bond.
  • Enumerating fees for investment banking and other advisory services. As an illustration, a mergers & acquisitions advisor may charge around 100 BPS (1%) based on the transaction size, depending on the deal’s intricacies.
  • Gauging investment performance over specific durations. Investors might gauge returns against a benchmark in basis points, not just percentage points.
  • Drawing comparisons between yields or returns of varied financial assets. A corporate bond, for instance, might yield 50 BPS more than a Treasury of a similar maturity.