Treasury Inflation-Protected Securities (TIPS) are a type of U.S. Treasury bond that is indexed to inflation. This means that the principal value of the bond is adjusted to reflect changes in the Consumer Price Index (CPI). TIPS are designed to protect investors from inflation risk.
The principal value of TIPS is adjusted to reflect changes in the Consumer Price Index (CPI). This protects investors from inflation risk.
TIPS pay a fixed interest rate on the adjusted principal value. This provides investors with a predictable stream of income.
TIPS are backed by the full faith and credit of the U.S. government. This makes them a very safe investment.
TIPS are issued with maturity dates of 5, 10, and 30 years.
TIPS are subject to federal income tax, but they are exempt from state and local taxes.
The principal value of TIPS is adjusted twice a year to reflect changes in the CPI. If the CPI increases, the principal value of the TIPS increases. If the CPI decreases, the principal value of the TIPS decreases.
TIPS pay interest twice a year at a fixed rate on the adjusted principal value. This provides investors with a predictable stream of income that is protected from inflation.
At maturity, investors receive the adjusted principal value of the TIPS or the original principal value, whichever is greater.
TIPS may be a good option for individuals who:
| Feature | TIPS | Nominal Treasury Bonds |
|---|---|---|
| Inflation Protection | Yes | No |
| Principal Adjustment | Yes | No |
| Interest Rate | Fixed | Fixed |
| Risk | Low | Low |