Basis Point (bp)

A basis point is the standard unit of measurement whenever financial professionals need to discuss fractions of a percent without ambiguity. One hundred basis points equal one full percentage point. The term exists because saying a fee changed from 0.75% to 1.00% is easy to misread in conversation, while saying it rose by twenty-five basis points is precise and unambiguous. The abbreviation "bp" is singular or plural in common usage; "bps" is also widely used.

Basis points appear throughout the financial field that wealthy families work through: fixed income yield spreads are quoted in basis points, separately managed account fees are often expressed in basis points, and the difference between two managers' performance might be described as a handful of basis points per year. Because fees compound over time, even small differences measured in basis points can translate into meaningful dollar differences across a multi-decade investment horizon.

A common confusion arises when mixing basis points and percentage points in conversation. If a rate moves from 4% to 5%, that is a move of one hundred basis points, not one basis point. Misreading the unit can distort an investor's sense of how significant a change actually is, which is precisely why professionals default to basis points whenever precision matters.