Basis Point Calculator

A basis point is a unit used in the financial industry to represent very small changes that cannot be clearly expressed as percentages. One basis point is equal to one hundredth of a percentage point. This calculator allows for three common calculations involving basis points: converting values between basis points, percent and per mille; converting a number of basis points into the corresponding dollar amount; or calculating the difference in basis points between two interest rates, or a new interest rate given changes in basis points.

By selecting the mode above, the fields will change accordingly. The tools for numbers and interest rates allow bidirectional calculations. If you fill a field with the value that you want to calculate, the results from the other two fields are determined.

What is a basis point?

A basis point is abbreviated as "bp" or "bps", and pronounced "bips". As it represents one hundredth of a percentage point, a basis point is one hundredth of a percentage point. One hundred basis points are equal to one percentage point, and ten thousand basis points are equal to one whole unit.

Percent, per mille and basis point are three different measures that represent the same concept. A percent is one hundredth, a per mille is one thousandth, and a basis point is one ten-thousandth. The last unit is also called "permyriad", but in the context of interest rates it's always referred to as a basis point.

Why are basis points used?

For example, if a rate of interest is reported as having "gone up one percent", it could mean that it has gone to 6% (an increase of one percentage point) or 5.05% (an increase of one percent of its own value). The two interpretations are very different. If the rate is said to have "gone up 100 basis points" there is only one possible meaning: it is now 6%.

Basis points represent an absolute step size rather than a relative width so that speculation can be avoided as long as the range of fluctuation is small. This applies in particular to interest rates, yields and spreads.

Conversion of basis points

To convert basis points to a percentage, divide by 100 and to convert them into decimals, divide by 10,000. To reverse the conversion, multiply.

For example, 25 basis points is either 0.25% or 0.0025. Fifty basis points is either 0.5% or 0.005. A quarter percentage point increase in interest rates, which is the most common increment used by central banks, is equal to 25 basis points.

The Monetary Value of Basis Points

The reference value for a particular amount is that amount divided by ten thousand. Multiplying the number of reference points gives the corresponding amount.

If a stock with a value of $60,000 goes up by 50 basis points, the profit will increase by $300,, so that the current value is $60,300. If a broker charges a fee of 30 basis points and the transaction amount is $150,000, you get $450.. The same relationship can be applied in reverse. As the number of basis points can be calculated from the fees and the amount, a fee of $450 corresponds to a transaction worth $150,000 30 basis points.

Interest rate changes and spreads

The difference between two rates in basis points is the result of multiplying the difference in percentage points by 100. If a yield goes from 1.25% to 1.50%, this represents an increase of 25 basis points. When a mortgage rate of 3.62% falls by 15 basis points, it becomes 3.47%.

Basis points can also take negative values. This is to represent changes that can go in both directions. A "drop of 15 basis points" and a "rise of minus 15 basis points" mean the same thing, but are usually referred to as a drop.

Applications for reference points.

In situations where even small changes in interest rates are significant, the basis point is used. Central banks announce policy changes in terms of basis points. Bond traders quote yields and spreads between two bonds in terms of basis points. Fund managers use basis points to show changes in fees or expenses; for example, if a fund cuts its fees by 20 basis points, it means that the cost has been reduced by 0.2 percentage points. Interest rates on loans and mortgages, swap rates, and credit spreads also change in terms of basis points.