When something that is already a percentage changes, the change is measured in percentage points. If unemployment goes from 4.0% to 4.5%, it has risen by 0.5 percentage points. Measured as a percentage of itself, it has risen by 12.5%, which is a different and usually misleading number.
A basis point is one hundredth of a percentage point. Bond and interest-rate markets use them because moves are often small: a 10-year yield rising from 4.30% to 4.37% is up 7 basis points (7 bp).
Why it matters
Mixing the two is one of the most common errors in financial reporting. A cash rate going from 0.10% to 0.35% is a 250% increase but only a 0.25-point change, and it is the point change that tells you how much more a mortgage costs.
On FinVolio
Every change in a rate or a percentage is shown in points ("pts") or basis points ("bp"); changes in prices and quantities are shown in per cent.
General information, not advice.