A basis point (bp) equals 0.01%, or one-hundredth of one percentage point. The Federal Reserve and financial markets use basis points to describe rate changes precisely — avoiding ambiguity about whether “1%” means 1 percentage point or a 20% relative increase. When the Fed cuts rates by 25 bps, your high-yield savings APY typically falls by about the same amount.
Basis Point Conversion Table
| Basis Points | Percentage | Decimal |
|---|---|---|
| 1 bp | 0.01% | 0.0001 |
| 5 bps | 0.05% | 0.0005 |
| 10 bps | 0.10% | 0.001 |
| 25 bps | 0.25% | 0.0025 |
| 50 bps | 0.50% | 0.005 |
| 75 bps | 0.75% | 0.0075 |
| 100 bps | 1.00% | 0.01 |
| 200 bps | 2.00% | 0.02 |
| 500 bps | 5.00% | 0.05 |
To convert: Percentage → basis points: multiply by 100. Basis points → percentage: divide by 100.
Why Finance Uses Basis Points
When rates are small, percentage-point language becomes ambiguous. Consider:
“The mortgage rate rose 1%.”
Does that mean:
- From 6.80% to 7.80% (1 percentage point = 100 bps)? Or
- From 6.80% to 6.868% (1% of 6.80% = 6.8 bps)?
Saying “the mortgage rate rose 100 basis points, from 6.80% to 7.80%” is completely unambiguous.
This precision matters in:
- Federal Reserve rate decisions — always stated in bps
- Mortgage loan agreements — adjustable-rate caps often specified in bps
- Bond yield spreads — the difference between two yields (e.g., a corporate bond yields 150 bps above the 10-year Treasury)
- Credit card margin over prime — “prime + 1450 bps” means prime + 14.50%
- Bank fee disclosures — fund expense ratios stated in bps (e.g., 10 bps = 0.10% annual fee)
Federal Reserve Rate Moves in Basis Points
The Fed adjusts the federal funds rate in standard increments:
| Move Size | Basis Points | Signal |
|---|---|---|
| Standard hike/cut | 25 bps (0.25%) | Normal adjustment |
| Larger move | 50 bps (0.50%) | Heightened concern |
| Emergency move | 75–100 bps | Crisis response |
During the 2022–2023 inflation-fighting cycle, the Fed raised rates by 75 bps at four consecutive meetings — the most aggressive pace since the 1980s. As of May 2026, the fed funds rate is 4.25%–4.50% after three 25 bp cuts in late 2024 and early 2025.
Worked Example: 25 bp Rate Cut on Your Finances
Suppose the Fed cuts rates by 25 basis points (0.25%).
| Product | Before Cut | After Cut | Change |
|---|---|---|---|
| High-yield savings APY | 4.75% | ~4.50% | −$25/yr per $10k |
| HELOC rate (prime+1%) | 8.50% | 8.25% | −$208/yr per $100k balance |
| Variable credit card APR | 22.75% | ~22.50% | Minimal on most balances |
| 30-year fixed mortgage | ~6.80% | ~6.80% | Unchanged (tracks Treasuries) |
Notice that fixed-rate mortgages do not automatically adjust with Fed rate moves — they track the 10-year Treasury yield. For more on this relationship, see how the Federal Reserve affects your savings and loan rates.
Basis Points in Investment Fees
Fund expense ratios are commonly expressed in basis points:
| Expense Ratio | Basis Points | Annual Cost on $100,000 |
|---|---|---|
| 0.03% (index fund) | 3 bps | $30 |
| 0.10% (ETF) | 10 bps | $100 |
| 0.50% (active fund) | 50 bps | $500 |
| 1.00% (typical active) | 100 bps | $1,000 |
A difference of 75 bps in fund fees on a $100,000 portfolio compounds to more than $20,000 in lost returns over 20 years.
For a deeper understanding of how rate changes flow through to your accounts, see the Interest Rates & Federal Reserve hub and what the current prime rate means for variable borrowing costs.
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