A basis point is one one-hundredth of one percent, or 0.01%. Financial professionals use the unit because it removes an ambiguity that plain percentages carry, and because most of the numbers that actually move money, from rate decisions to fund fees to bond spreads, live in fractions of a percent. If you can divide by 100, you can read every basis point figure you will ever see.
The Math
The anchor to memorize: 100 basis points equals exactly 1.00%. Everything else scales from there.
- To go from basis points to a percentage, divide by 100. So 50 basis points is 0.50%, and 250 basis points is 2.50%.
- To go from a percentage to basis points, multiply by 100. A rate of 0.75% is 75 basis points, and 3.25% is 325 basis points.
- To go from basis points to a decimal you can plug into a dollar calculation, divide by 10,000. So 25 basis points is 0.0025, and 75 basis points is 0.0075.
That last conversion is the one that touches your wallet. A fee quoted at 150 basis points on a $200,000 portfolio works out to $200,000 × 0.015, or $3,000 a year.
Why the Term Exists
Percentages create a specific problem. If someone says a rate “increased by one percent,” you cannot tell what happened. A 5.00% rate could have gone up to 6.00%, or it could have gone up by one percent of itself, moving from 5.00% to 5.05%. Both readings are grammatically valid, and the gap between them is enormous.
“Increased by 100 basis points” can only mean the rate went from 5.00% to 6.00%. “Increased by 5 basis points” can only mean it went from 5.00% to 5.05%. There is no second reading. In markets where large sums move on the wording of a single announcement, that precision is the point of the unit.
Where You Will See Basis Points
Federal Reserve Rate Decisions
The Federal Open Market Committee announces its target range for the federal funds rate exclusively in basis point increments, typically 25 or 50 at a time.1Federal Reserve Board. Policy Tools When a headline says the Fed “cut rates by 25 basis points,” that quarter-percent shift flows into adjustable-rate mortgages, home equity lines, credit card APRs, and savings yields within weeks.
Bond Yield Spreads
The yield difference between two bonds is called a spread, and traders quote it in basis points. The most-watched spread compares 10-year Treasury yields to 2-year Treasury yields; when it turns negative, the yield curve is said to be inverted, a condition that has historically preceded recessions.
Corporate bonds price the same way. A company might issue debt at “Treasury plus 200 basis points,” meaning the bond yields 2.00% more than a comparable Treasury to compensate investors for credit risk. Investment-grade issuers might add 100 to 200 basis points; lower-rated borrowers might add 400 or more.
Fund Expense Ratios
Every mutual fund and ETF charges an expense ratio, the annual percentage of your invested assets that covers the fund’s management and operating costs.2U.S. Securities and Exchange Commission. Expense Ratio The industry discusses these fees in basis points because the differences between funds are small in percentage terms and large in dollar terms over time. A low-cost index fund might charge 5 to 20 basis points. An actively managed equity fund often charges 50 to 100.
Credit Card APR Margins
Most credit cards use a variable rate built from the prime rate plus a fixed margin set by the issuer. The Consumer Financial Protection Bureau found that the average APR margin on revolving credit card accounts reached 14.3 percentage points, or 1,430 basis points, above the prime rate, the highest level on record.3Consumer Financial Protection Bureau. Credit Card Interest Rate Margins at All-Time High
Mortgage Rates and Fees
Mortgage origination fees commonly fall between 50 and 200 basis points of the loan amount, so on a $400,000 mortgage, that is $2,000 to $8,000.4Consumer Financial Protection Bureau. What Are Mortgage Origination Services? What Is an Origination Fee? Credit scores also translate into basis point spreads. As of early 2026, the gap between the average 30-year mortgage rate for a borrower with a 620 FICO score and one with a score above 800 was roughly 97 basis points, close to a full percentage point. On a $400,000 loan, that comes to nearly $4,000 a year in additional interest.
Turning Basis Points Into Dollars
The formula: convert the basis points to a decimal by dividing by 10,000, then multiply by the principal. That gives you the annual dollar impact.
Compare two mortgage offers on a $400,000 loan, one at 6.50% and one at 6.75%. The difference is 25 basis points. Converted to a decimal, 25 basis points is 0.0025. Multiply by $400,000, and the higher-rate loan costs an extra $1,000 a year. Over 30 years, once amortization is factored in, the total cost difference runs into the tens of thousands.
The same math applies to funds. Hold $50,000 in a fund charging 75 basis points and you pay $375 a year. A fund charging 10 basis points costs $50. The $325 gap is the annual number; the real damage comes from what those dollars would have earned if they had stayed invested.
Why Small Gaps Matter Over Time
Basis point differences that look trivial in a single year become punishing over a long horizon. The SEC illustrates this with a straightforward example: on a $100,000 investment earning 4% a year, the difference between paying 25 basis points in fees and 100 basis points costs you nearly $30,000 over 20 years. The 25-basis-point version grows to roughly $208,000; the 100-basis-point version reaches about $179,000.5U.S. Securities and Exchange Commission. Mutual Fund Fees and Expenses Even a 25-basis-point gap eats roughly $10,000 from that same $100,000 over two decades. Stretch the timeline further and the numbers get worse, because the fee drag compounds the same way the returns do.
Quick Reference Conversion Table
- 1 basis point: 0.01% or 0.0001 decimal
- 10 basis points: 0.10% or 0.0010 decimal
- 25 basis points: 0.25% or 0.0025 decimal
- 50 basis points: 0.50% or 0.0050 decimal
- 75 basis points: 0.75% or 0.0075 decimal
- 100 basis points: 1.00% or 0.0100 decimal
- 200 basis points: 2.00% or 0.0200 decimal
- 500 basis points: 5.00% or 0.0500 decimal
Every 100 basis points is one percentage point. The pattern does not change with the size of the number or the product it is attached to.6CME Group. Understanding the Importance of Basis Point Value