Basis point (bp) — what is it?

Quick Answer

A basis point (bp/bps) is a unit of measurement equal to 1/100 of a percentage point, i.e. 0.01%, so 100 bp equal one full percentage point. Finance uses it to express changes in interest rates, margins and yields precisely, avoiding the ambiguity of "1 percent" (a percentage point versus a relative change). You meet it in RPP/NBP rate decisions ("lowered by 25 bp"), credit margins ("180 bp" = 1.80%), bond spreads and fund fees (TER "15 bp" = 0.15%).

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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

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%

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FAQ

How much is one basis point?

One basis point (bp) equals 0.01%, or 1/100 of a percentage point. 100 basis points therefore equal one full percentage point. The unit exists to remove ambiguity when describing small but financially meaningful changes in rates, yields, and fees.

Why do central banks announce rate changes in basis points?

When the NBP Monetary Policy Council (RPP) or the ECB changes interest rates, even a small move materially impacts loans, savings, and bond prices. Saying "the rate was cut by 25 bp" is unambiguous, while "cut by 1%" can be misread as either a percentage point or a relative change. Markets and journalists therefore default to basis points for clarity.

How do I convert basis points to a percentage?

Divide the number of basis points by 100. So 25 bp = 0.25%, 75 bp = 0.75%, and 250 bp = 2.50%. The same conversion works in reverse — a 0.40% change equals 40 bp.

Where are basis points used outside of interest rates?

Basis points show up in bond yield spreads, credit margins on loans, ETF and mutual fund expense ratios (TER), and credit default swap pricing. For example, an ETF described as charging "15 bp" has an annual fee of 0.15%. They are also standard in FX swap and money market quotations.

Does an NBP rate change by 50 bp affect my mortgage immediately?

For variable-rate mortgages indexed to WIBOR (or WIRON going forward), a change in NBP rates typically flows through to the benchmark within days or weeks, and into your instalment at the next rate reset. The actual instalment impact depends on outstanding principal, remaining tenor, and the bank's margin. This article is educational and does not constitute financial advice.