Percentage Points
One Percentage Point = 1%, as a simple difference.
Example: Going from 14% to 15% is a rise of 1 Percentage Point
How to Avoid Confusion with "Percentage Difference"!
If you simply subtract one percentage from another, use the term "Percentage Points" when talking about the difference.
This makes it clear that you do not mean a relative change (ie some fraction of the original value).
Example:
Headline: "Interest Rates Jump From 10% to 12%"
Is it: | 12/10 = 1.2 = 120%, so that is a 20% rise. | ||
Or is it: | From 10% to 12% which is a 2% rise? |
Is it 20% or just 2%?
Correctly speaking, that was a 20% rise, because "%" is a ratio of two values (the new value divided by the old value).
However, people with home loans may think you mean that interest rates went from 10% to 30%, and you don't want them falling over in surprise!
So, the alternative is to say it was a rise of 2 Percentage Points.
So here are two correct ways to talk about a rise from 10% to 12%:
a rise of 20% | |
a rise of 2 Percentage Points |
When in doubt, use both. For example, "Interest rates increased by 2 Percentage Points today, meaning a 20% increase in interest payments"
Basis Points
In financial markets they often use the term "Basis Points". A Basis Point is one hundredth of a Percentage Point:
1 Basis Point = 0.01 Percentage Points
so:
100 Basis Points = 1 Percentage Point
Example: The difference between 8.10% and 8.15% is 5 Basis Points