What is a basis point
A basis point (short form bp, plural bps, said "beeps" or "bee-pee-ess") is a percent of a percentage point. It measures changes in interest rates, yields, spreads and fees.
A percentage point is the plain difference between two values that are already in percent. For example, a rate going from one percent level to the next whole level has moved by a percentage point. A basis point is a smaller step of that same move.
Formal definition: a basis point is a ten-thousandth part of a whole, also called a permyriad (symbol ‱). This equals a percent of a percent.
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Why the term exists
When a rate is already in percent, the phrase "the rate rose by X percent" is ambiguous. It can mean:
- a change in percentage points, which adds to the rate, or
- a relative change, which multiplies the rate.
Saying "X bps" removes the doubt. It always means an absolute change in the rate itself, never a relative change.
Worked example: an SBP rate decision
A real announcement from the State Bank of Pakistan reads:
SBP policy rate raised by 50 bps to 12% with effect from 27.10.2026 (MPC)
How to read it:
- The size of the change is given in bps. The new level of the policy rate is given in percent.
- The new rate is the old rate plus the bps change, converted into percentage points. You add the change to the old rate. You do not multiply the old rate by it.
- The previous level is the new level minus the change.
If you wrote "the rate rose by that many percent", you would describe a different, much smaller move. That is the mistake bps prevent.
Where you see basis points
| Context | How it appears |
|---|---|
| Central bank statements | Policy rate moves, such as the SBP decision above |
| Bond and T-bill reports | Changes in yields; see Coupon (bond) and Bond duration |
| Credit markets | The gap between a corporate and a government yield; see Credit spread |
| Loans and deposits | A margin over a benchmark rate, such as KIBOR plus a stated number of bps; see Saving, Investing, Loans |
| Funds | Annual fees and expense ratios |
| FX forwards | Interest differentials behind forward points and covered interest parity |
On trading platforms, prices move in pips or points, not basis points. Basis points mostly appear in the rate news that traders follow in fundamental analysis, and in the interest rates behind overnight swap fees.
Edge cases for experienced readers
- bp vs pip. A pip is a unit of a currency price. A basis point is a unit of a rate or ratio. They are not interchangeable. See also Big figure.
- Fractional bps. Money markets and swaps often quote changes in fractions of a basis point.
- Negative rates. A move in bps works the same way below zero. The rate simply becomes more or less negative.
- Relative bps. Some fund and fee documents use bps of assets, not of a rate. Check which base the document uses.
- Price vs yield. A yield change in bps does not equal the same change in a bond's price. Duration links the two.
Risk note
Rate decisions expressed in bps can move currencies, gold and indices sharply. Leveraged CFD and forex trading can lose money fast, including around such announcements. See Risk management.
Frequent questions
What is the bps meaning in news?
"Bps" means basis points. "Raised by X bps" means the rate rose by that many percent of a percentage point.
How are basis points used in interest rates?
They state the absolute change in a rate, so there is no confusion with a relative percent change.
Is a basis point the same as a pip?
No. A pip measures a currency price change. A basis point measures a change in a rate, yield or fee.
Where can I find more terms like this?
See the Trading glossary and Accrued interest.