A basis point is one one-hundredth of one percent, or 0.01%, and it is the standard unit finance uses to describe small changes in interest rates, bond yields, and investment fees. As a decimal, one basis point equals 0.0001. So if you want to know what basis points are in plain terms: 100 of them make one full percentage point, and 25 of them make a quarter of a percent. You will see the unit abbreviated as “bps” and hear it pronounced “bips.”
Converting Basis Points to Percentages
The math is simple. Divide basis points by 100 to get a percentage. Multiply a percentage by 100 to get basis points. The conversions you will run into most often:
- 1 basis point = 0.01% (0.0001)
- 10 basis points = 0.10% (0.0010)
- 25 basis points = 0.25% (0.0025)
- 50 basis points = 0.50% (0.0050)
- 100 basis points = 1.00% (0.0100)
If a lender tells you your rate is going up by 75 basis points, that is a 0.75% increase. If a news report says the Federal Reserve cut rates by a quarter point, that is a 25-basis-point cut.
Why Finance Uses Basis Points Instead of Percentages
Percentages carry an ambiguity that basis points remove. If someone says a 5% interest rate “increased by 1%,” the sentence has two valid readings. The new rate could be 6%, meaning one full percentage point was added. Or it could be 5.05%, meaning the rate went up by 1% of its previous value. Those two outcomes cost a borrower very different amounts of money.
Basis points close that gap. An increase of 100 basis points always means the rate moved by exactly one percentage point, from 5% to 6%. An increase of 5 basis points always means the rate moved from 5% to 5.05%. There is no second reading. That precision is why loan agreements, investment disclosures, and central bank announcements are written in basis points rather than loose percentage language.
Where You Will See Basis Points
Mortgages and Consumer Loans
Mortgage rates are quoted and adjusted in basis points, and small movements matter over the life of a loan. On a $300,000, 30-year mortgage, a 25-basis-point rate increase adds roughly $50 to the monthly payment and thousands of dollars in interest over the full term.
Adjustable-rate mortgages are structured directly around basis points. The lender ties your rate to a benchmark index and adds a fixed margin. For ARMs indexed to the Secured Overnight Financing Rate, the margin the lender adds typically runs between 100 and 300 basis points (1% to 3%) above the index.1Freddie Mac Single-Family. SOFR-Indexed ARMs If the index sits at 3.5% and your contract specifies a 200-basis-point margin, your rate is 5.5%.
Credit Card APRs
Credit card issuers set variable APRs in basis points above a benchmark index. A card agreement that says the rate is the index plus 1,200 basis points means the rate sits 12% above that index. A 50-basis-point move in the index changes your card’s APR by 0.50%.
Federal rules limit when an issuer can raise your rate. Under Regulation Z, a card issuer generally cannot increase the APR on an existing account unless a specific exception applies, such as a variable rate tracking its index or a promotional rate expiring. When an increase does happen, the issuer must give written notice at least 45 days before it takes effect.2Consumer Financial Protection Bureau. Comment for 1026.55 – Limitations on Increasing Annual Percentage Rates
Investment Fees
Mutual fund and ETF expense ratios are stated in basis points. A fund with an expense ratio of 15 basis points charges 0.15% of assets each year. One at 75 basis points charges five times as much. The SEC requires every mutual fund to disclose fees in a standardized table in its prospectus so investors can compare costs across funds.3SEC.gov. Mutual Fund Fees and Expenses These fees come straight out of returns, so a gap of 20 or 30 basis points compounds into real money over the decades you hold a fund.
Savings Accounts and CDs
On the deposit side, basis points describe how much interest you earn. A savings account paying 440 basis points (4.40%) earns substantially more than one paying 22 basis points (0.22%). When shopping for a deposit account, convert the basis-point gap into dollars: on a $10,000 balance, a 400-basis-point difference is about $400 a year in interest.
Federal Reserve Rate Decisions
The Federal Open Market Committee announces changes to its target range for the federal funds rate in basis points. As of January 29, 2026, the target range sits at 3.50% to 3.75%, following a 25-basis-point cut in December 2025.4The Federal Reserve. The Fed Explained – Accessible: FOMC’s Target Federal Funds Rate or Range When the Fed moves the target range, borrowing costs for mortgages, auto loans, and credit cards tend to shift by a similar number of basis points. A single 25-basis-point change is small on its face but affects trillions of dollars in outstanding debt, which is why the Fed usually moves in small measured increments rather than large jumps.
Basis Points Are Not Discount Points
Two similar-sounding terms on a mortgage document measure different things. Basis points describe a change in the interest rate itself: 25 basis points is a 0.25% rate change. Discount points are an upfront fee, calculated as a percentage of the loan amount. One discount point on a $300,000 mortgage costs $3,000 at closing and typically buys down the rate by about 25 basis points (0.25%).5Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction When you read a Loan Estimate or Closing Disclosure, check which one the document is talking about, because confusing the two produces very different expectations about what you pay and what you get.
The 12.5-Basis-Point Accuracy Rule
Basis points also define how accurate a lender’s rate disclosure has to be. Under Regulation Z, which implements the Truth in Lending Act, a disclosed annual percentage rate is considered accurate as long as it falls within 12.5 basis points, or one-eighth of one percentage point, of the actual rate.6Consumer Financial Protection Bureau. 1026.14 Determination of Annual Percentage Rate A disclosure that misses by more than that is inaccurate under federal law.
Inaccurate disclosures carry consequences. The Truth in Lending Act lets borrowers sue a creditor for failing to comply with disclosure rules. In an individual action involving a mortgage or another loan secured by your home, a court can award actual damages plus statutory damages between $400 and $4,000, along with attorney’s fees. For open-ended credit such as a credit card, statutory damages run from $500 to $5,000.7Office of the Law Revision Counsel. 15 U.S. Code 1640 – Civil Liability Knowing how to convert basis points to a percentage gives you a concrete way to check whether the APR on your loan documents sits inside that 12.5-basis-point window.