In simple terms

A basis point is a tiny unit for measuring percentages. One basis point is 0.01%, so 100 basis points make one percentage point.

Finance uses it because interest rates often move in small steps. Saying “the rate rose 25 basis points” is shorter and clearer than “the rate rose a quarter of a percentage point.”

How it works

To convert, multiply a change in percentage points by 100. A change of 0.25 percentage point is 25 basis points. A change of 1.5 percentage points is 150 basis points.

The unit also removes a common confusion. If a 2% rate “rises by 10%,” it could mean 2.2% or 12%. “Up 20 basis points” can only mean 2.2%.

Why it matters

Small moves in rates add up to real money. On a loan of 200,000 in any currency, an extra 25 basis points adds roughly 500 a year in interest. Across a whole economy, a central bank move of a few dozen basis points changes what millions of people pay to borrow and earn on their savings.

Where you’ll see it

• Central bank decisions, such as a policy rate cut of 25 basis points.
• Mortgage and loan offers, when lenders compare rates.
• Bond markets, where yields and the spread between two interest rates are quoted in basis points.
• Investment fees: a fund that charges 0.75% a year charges 75 basis points.

Example

The central bank raised its policy rate by 50 basis points, from 5.00% to 5.50%.

Often confused with

Percent change. A rate moving from 2.00% to 2.25% rises by 25 basis points, or 0.25 percentage point. But that is a 12.5% increase in the rate itself.

Editorially reviewed by Specialty Digest Editorial TeamLast reviewed September 11, 2026Researched and drafted with AI assistanceReport an issue