Investing BasicsGlossary
Basis point
A basis point is one hundredth of a percentage point, so 100 basis points equal 1%. Plain-English definition, quick conversions and a fee example.
Also called: bp, bps, bip
Quick answer
A basis point is one hundredth of one percentage point (0.01%). So 1% equals 100 basis points, 0.25% equals 25 basis points, and a rate moving from 4.00% to 4.25% has risen by 25 basis points.
What does basis point mean?#
The SEC's Investor.gov glossary defines a basis point as one one-hundredth (.01) of a percentage point, and gives the example that eight percent is equal to 800 basis points[1]. People write it as bp or bps and often say it out loud as "bips".
Basis points exist to avoid confusion when talking about small changes in rates. If a 4% rate rises by "1 percent", it is unclear whether the new rate is 5% or 4.04%. Saying it rose by 100 basis points means only one thing: 5%.
How do you convert between percent and basis points?#
Multiply a percentage by 100 to get basis points, and divide basis points by 100 to get a percentage. A change from 4.00% to 4.25% is an increase of 25 basis points. As a share of the old rate it is a 6.25% increase, which is why it helps to be clear about which one you mean.
Worked example
Common conversions and what they cost on $10,000
A 0.10% yearly fee is 10 basis points and costs $10 a year on a $10,000 balance. A 0.25% fee is 25 basis points and costs $25. The 15-basis-point difference between them is $15 a year, before any change in the balance.
| Percent | Basis points | Yearly cost on $10,000 |
|---|---|---|
| 0.03% | 3 | $3.00 |
| 0.10% | 10 | $10.00 |
| 0.25% | 25 | $25.00 |
| 1.00% | 100 | $100.00 |
| 8.00% | 800 | $800.00 |
Figures computed in code from the stated inputs; rounded to the nearest cent or tenth.
Where will you see basis points?#
Interest rates. Central bank decisions are often described in basis points. In September 2025, for example, the Federal Reserve's policy committee lowered the target range for the federal funds rate by 1/4 percentage point[2], which is a cut of 25 basis points. See how the Fed sets interest rates.
Fees. Fund expense ratios and advisory fees are small percentages, so they are often compared in basis points. The SEC's fee bulletin compares yearly fees of 0.25%, 0.50% and 1.00%[3], that is 25, 50 and 100 basis points. In that example the gap between 25 and 100 basis points grows to about $29,200 on $100,000 over 20 years; see how investment fees affect returns and expense ratios.
Bond yields. Changes in bond yields and the gap between two yields are usually quoted in basis points too.
Sources
Numbers in brackets in the text point here. Grade A = primary source (regulator, statistics agency, law or official document).
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