What Is a Basis Point? A Practical Guide to Rate Decisions

Central-bank coverage often refers to “25 basis points.” One basis point equals 0.01 percentage point, so 25 basis points equal 0.25 percentage point. The convention helps describe changes in interest rates and yields without ambiguity.

A recent example is the Bank of England’s November 5, 2026 announcement raising Bank Rate from 3.75% to 4%. The increase is 0.25 percentage point, or 25 basis points. It does not mean a 25% increase, and it does not make the new rate 4.25%.

For a numerical illustration, consider a hypothetical 1,000 currency units earning simple annual interest with no fees or compounding. At 3.75%, interest would be 37.50. At 4%, it would be 40. The difference is 2.50 over a year. This is arithmetic for learning, not a real product quote or a calculation for a particular loan.

Before applying a news item to personal finances, check whether the rate is annual, whether it is fixed or variable, and whether fees or compounding are included. The transmission from a central-bank rate to a commercial loan or deposit also depends on the provider and contract.

For a quick calculation, subtract the old rate from the new one to obtain the percentage-point change, then multiply that difference by 100 to obtain basis points.