Basis point (bp) — what is it?
Basis point — definition, converter and application. Why do we use basis points instead of percentages in finance?
Definition
Basis point (bp/bps) — unit of measurement equal to 1/100 of a percentage point, i.e., 0.01%. Used in finance to precisely express changes in interest rates, margins and yields.
Converter
| Basis points | Percentage |
|---|---|
| 1 bp | 0.01% |
| 10 bp | 0.10% |
| 25 bp | 0.25% |
| 50 bp | 0.50% |
| 100 bp | 1.00% |
| 200 bp | 2.00% |
Why not percentages?
Because "1 percent increase" is ambiguous. If the rate is 5%:
- Increase by 1 percentage point → 6%
- Increase by 1% (relatively) → 5.05%
Basis points eliminate this ambiguity. "25 bp increase" always means +0.25 pp.
Where will you encounter basis points?
- RPP/NBP decisions — "RPP lowered rates by 25 bp"
- Credit margins — "bank margin: 180 bp" = 1.80%
- Bond spreads — "spread vs benchmark: 120 bp"
- Fund fees — "fund TER: 15 bp" = 0.15%
How Freenance can help
Freenance presents investment and credit costs in a clear way — both in percentages and basis points — so you always precisely understand how much you're paying.
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