## What Are Basis Points (BPS)?

Basis points (BPS) refer to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001, and is used to denote the percentage change in a financial instrument. The relationship between percentage changes and basis points can be summarized as follows: 1% change = 100 basis points and 0.01% = 1 basis point.

Basis points are typically expressed in the abbreviations “bp,” “bps,” or “bips.”

The “basis” in basis point comes from the base move between two percentages, or the spread between two interest rates. Because the changes recorded are usually narrow, and because small changes can have outsized outcomes, the “basis” is a fraction of a percent.

The basis point is commonly used for calculating changes in interest rates, equity indices, and the yield of a fixed-income security. It is common for bonds and loans to be quoted in basis point terms. For example, it could be said that the interest rate offered by your bank is 50 basis points higher than the London Interbank Offered Rate (LIBOR).

A bond whose yield increases from 5% to 5.5% is said to increase by 50 basis points, or interest rates that have risen 1% are said to have increased by 100 basis points. If the Federal Reserve Board raises the target interest rate by 25 basis points, it means that rates have risen by 0.25% percentage points. If rates were at 2.50%, and the Fed raised them by 0.25%, or 25 basis points, the new interest rate would be 2.75%.

## How much is 50 basis points?

50 basis points is equivalent to 0.5%, as 1 basis point is one-hundredth of 1%, or 0.01%. For example, if a stock option worth $60000 has increased by 50 basis points, its value has increased by $300, and is now worth $60300.

## Why do we have basis points?

You may ask yourself why do we need to use basis points if they are the same as per myriads. Well, while these concepts are related, they are not exactly the same. The relation between a basis point and a per myriad is the same as between a percent and a percentage point.

A basis point is equal to the value of a per myriad, but it is used when we speak about changes in percentage rates.

For example, let’s say that in some country the unemployment rate in 2017 was 6%. By 2018, this value had changed to 16%. You may want to say that the value has increased by 10%, but it is not quite clear whether you mean that it changed from 6% to 6.6% (a relative value) or from 6% to 16% (an absolute value).

To avoid this confusion, you can say it has increased by 1000 BPS. Then we know that you mean the second scenario, that is the increment by points, not by a percentage of a percentage. In this way, basis points help to eliminate ambiguity when talking about rate changes.

## How to convert basis points to percent?

The easiest way is to put a number into any field of the basis point calculator and let it do the math for you!

It’s not, however too difficult to do it by hand, so if you want to convert:

- Basis points to percent’s – divide the points by 100.
- Percentage to basis points – multiply the rate by 100.

**For example:**

You read that: “The average rate for a 30-year fixed mortgage is 4.09 percent, an increase of 9 basis points since the same time last week.” To know what the rate used to be, divide bps by 100:

**9 / 100 = 0.09**

Since it has increased, subtract the value from the current rate:

**4.09 – 0.09 = 4**

The average rate used to be 4%.

You want to say that Australia’s central bank’s benchmark interest rate decreased from 1.5% to 1.25%.

To express the percentage in basis points, calculate the difference and multiply it by 100:

**1.5% – 1.25% = 0.25%**

**0.25 * 100 = 25**

You can say that the interest rate decreased by 25 BPS.

## Where are basis points used?

Basis points are mainly used in finance to describe the percentage changes or to denote a difference between two interest rates, especially when the rate difference is less than 1 percent. Basis points are used for measuring yields, loans, treasury bonds, corporate bonds, interest rate derivatives, credit derivatives, and debt securities such as mortgage loans.

They are the smallest unit of measurement for financial instruments but don’t underestimate them. They can be very significant, as in some situations small changes in rates can have substantial economic outcomes.

## Is 50 basis points half a percent?

Since one basis point is always equal to 1/100th of 1%, or 0.01%, the example above demonstrates how they can eliminate any ambiguity and create a universal measurement that can be applied to the yields of any bond. The increase from 10% is either 50 basis points (which is 10.5%) or 500 basis points (which is 15%).

## How much is 100 basis points worth?

Basis points, also called bps (which sounds like “bips”), are a unit of measure used to describe the interest rate changes in a financial instrument. One basis point equals 0.01%, or 0.0001. One hundred basis points equal 1%.

## How much is 40 basis points?

40 basis points is the same as 0.4% or in decimal points form—0.004. This is because 1 basis point equals 0.01% or 1 basis point is equal to 1/100th of 1 percent.