Basis Points

Commonly used unit of measurement to track interest rates and changes in other financial percentages. Basis points are frequently expressed as “bps.”

One basis point = 0.01% - it’s 1/100th of 1%

Consequently: 1% = 100 bps

The term comes from the move from one percentage to another or the spread between interest rates. Since small percentage changes can have a larger outcome, the “base” move is a fraction of a percentage change. This measurement is mostly used for interest rates, equity indices and fixed-income securities (bond pricing).

Pop Quiz:

If the price of the S&P 500 index rises by 20 bps, what percentage change has occurred?

• 0.2%
• 0.02%
• 2%