Percentage Point
BeginnerA percentage point is the simple arithmetic difference between two percentages. It is different from a percentage change, which measures how much a figure has grown relative to its starting level.
Confusing percentage points with percentages is one of the most common mistakes in financial reporting. If an interest rate rises from 4% to 5%, it has risen by one percentage point. But measured as a percentage change, it has risen by 25%, because 1 is a quarter of 4.
Both statements are correct, but they mean very different things. A headline saying "mortgage rates jump 25%" and another saying "mortgage rates rise one point" can describe exactly the same change.
The distinction matters for any figure already expressed as a percentage: interest rates, unemployment rates, tax rates, inflation rates, profit margins and market shares. If unemployment falls from 6% to 5%, it has fallen by one percentage point, or by about 17% in relative terms.
In finance, small differences are often expressed in basis points, where 100 basis points equal one percentage point. Being clear about which measure is being used avoids misunderstandings when comparing rates or reading financial news.
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