Glossary
Basis point
One hundredth of a percentage point (0.01%), the standard unit for quoting changes in interest rates, yields and fees.
On this page
A basis point (bp, often said "bip") is one hundredth of one percentage point, or 0.01%. One hundred basis points make one percentage point. Bond traders, central banks, lenders and fund companies quote changes in rates and fees this way because it removes the ambiguity in phrases like "rates rose 10%," which could mean from 5% to 15% or from 5% to 5.5%.
How it works
Why the unit matters
Small numbers compound into large sums. On a $100 million bond portfolio, a 1 bp difference in yield is $10,000 a year. For an individual, the gap between a 5 bp and a 50 bp fund fee on $200,000 is $900 a year, before the lost compounding on that money.
Two related ideas often appear alongside it:
- Percentage change versus percentage-point change. A rate going from 2% to 3% rose 100 bp, or 1 percentage point, but it rose 50% in relative terms.
- DV01 or "dollar value of a basis point", which bond investors use to measure how much a bond's price changes for a 1 bp move in yield.
Basis points also appear in equity contexts, such as a margin improving by 120 bp from 18.0% to 19.2%.