About the Basis Points Calculator
Interest rates, fund fees and yields are often discussed in basis points, abbreviated bps and pronounced "bips". A basis point is one hundredth of a percentage point: 0.01%. Central banks raise rates by 25 basis points, mortgage lenders price loans in basis points over a benchmark, and investment funds quote fees in basis points. The unit exists because percentages can be ambiguous, while basis points always mean an absolute change.
This basis points calculator works two ways. Apply a change in basis points to a starting rate to get the new rate, the change in percentage points and the extra or reduced yearly interest on an amount. Or enter two rates to find the gap between them in basis points and the relative change.
How to Use the Basis Points Calculator
Choose Apply a change or Gap between two rates.
For a change, enter the change in basis points and the starting rate.
For a gap, enter the first rate and the second rate.
Optionally enter an amount to see the yearly effect in money.
The Formulas
1 basis point = 0.01 percentage point = 0.0001
new rate = starting rate + bps ÷ 100
bps between rates = (second rate − first rate) × 100
yearly effect = amount × bps ÷ 10,000
relative change = (new − old) ÷ old × 100%Step-by-Step Examples
A 25 bp rise on a 5.25% rate, on a 300,000 loan.
new rate 5.25% + 0.25 = 5.50%
yearly 300,000 × 25 ÷ 10,000 = 750 more interest
relative 0.25 ÷ 5.25 = 4.76%The gap between 4.50% and 4.85%.
gap (4.85 − 4.50) × 100 = 35 bps
relative 0.35 ÷ 4.50 = 7.78%Percentage Points and Percent
A rate rising from 4% to 5% has gone up by one percentage point, which is 100 basis points, but by 25 percent in relative terms. Newspapers sometimes blur the two, leading to confusion: "rates rose 1%" could mean either. Basis points remove the ambiguity, because they always describe the absolute change. The calculator shows both the basis point change and the relative change so you can see the difference.
Where You Meet Basis Points
Central banks set policy rates in steps, commonly 25 or 50 bps. Mortgages and other loans are priced as a spread in basis points over a benchmark rate. Bonds are compared by the spread between their yields, such as a corporate bond yielding 150 bps more than a government bond. Funds charge annual fees, the expense ratio, often quoted in bps: an index fund at 5 bps costs 0.05% a year, an active fund at 75 bps costs 0.75%. Banks quote the spread between what they pay depositors and charge borrowers in basis points.
Small Numbers, Big Money
A few basis points sound trivial, but they add up. On a 300,000 mortgage, each 25 bps is about 750 a year early in the loan. On a 500,000 retirement portfolio, the difference between a 5 bp and a 75 bp fund fee is 3,500 a year, before compounding. Over decades, fee differences of a few dozen basis points can amount to tens of thousands.
Loan Payments
The yearly effect shown is simple interest on the amount, a good guide to the first year of a loan. On an amortising loan, the balance falls over time, so the dollar effect shrinks; a mortgage calculator gives the exact change in the monthly payment.
Negative Basis Points
Rates can fall as well as rise. Enter a negative number of basis points for a cut: a central bank cutting by 50 bps lowers a 5.25% rate to 4.75%. The yearly effect then shows how much less interest is paid or earned on the amount entered. In the gap mode, a lower second rate gives a negative number of basis points.
Basis Points in Mortgages
Mortgage lenders often price discount points and lender credits in basis points of the loan amount. One discount point is 1% of the loan, or 100 bps, and typically buys a rate reduction of around 25 bps, though this varies by lender and market. Comparing the upfront cost in basis points with the rate change helps decide whether paying points is worthwhile over the time you expect to keep the loan.
Bond Spreads
Investors compare bonds by their yield spread over a benchmark such as a government bond of the same maturity. A corporate bond yielding 5.40% when the government bond yields 4.20% has a spread of 120 bps. Widening spreads signal that investors see more risk; narrowing spreads signal more confidence. Spreads are almost always quoted in basis points because the differences are small but important.
Fund Fees Over Time
Because fees are taken every year, the gap between two funds compounds. Over 30 years, a portfolio growing at 6% a year with a 5 bp fee ends noticeably larger than the same portfolio with a 100 bp fee. Use the compound interest calculator with the return reduced by each fee to see the difference.
Understanding Your Result
The headline gives the new rate, or the gap in basis points.
The working line shows the change in percentage points.
The yearly effect line shows the change in interest on your amount.
The relative change line shows the percent change in the rate.
When Should You Use This Calculator?
Use it to understand a central bank rate decision.
Use it to compare loan offers or fund fees quoted in basis points.
Use it to convert between basis points and percentages quickly.
Common Mistakes
Confusing percent with percentage points. Basis points are absolute.
Dividing by 1,000. One basis point is one ten-thousandth.
Ignoring small fee differences. They compound over time.
Assuming the yearly effect stays the same. Loan balances fall.