Published: March 2018
A basis point is a unit of measurement that is equal to 1/100 of one percent, or 0.01%. A basis point expressed numerically as a decimal is 0.0001. (Note: that’s really small). Basis points are often abbreviated as bps and pronounced as “bips.”
We use basis points when differences of less than 1% are meaningful, such as when discussing interest rates or yields on bonds. If the fraud rate from gift cards last month grew from 0.52% to 0.56%, then it changed by 4 bps (spoken as “four bips”).
While basis points are very small, they can add up over time or when applied to a large amount, so it is important to understand how they are calculated.
Basis Points & Percentage
1 basis point: 0.01%
10 basis points: 0.1%
50 basis points: 0.5%
100 basis points: 1%