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What are TIPS?

What are TIPS?

Treasury Inflation Protected Securities (TIPS) are coupon-paying treasuries issued by the US Government whose principal amount adjusts with inflation.

When a consumer buys Treasury Inflation Protected Securities (TIPS), they experience a few benefits when compared to other investment options.

One benefit is that the security is backed by the full faith and credit of the US Government. Another benefit is that the principal amount adjusts automatically for inflation with the Consumer Price Index.

Also they are exempt from state and local taxes, and they allow investment minimums of only $100. Lastly a great benefit is that they can be purchased directly so the investor does not incur the fees of a broker or fund manager's services.

TIPS have maturities of 5, 10, and 30 years, and pay interest semi-annually. If inflation is negative, the principal amount will be same as it was originally, and will not be adjusted down.

What is a Treasury Note?
What is the ‘Risk-Free Rate of Return’?

Keywords: inflation, U.S. Treasuries, risk free rate, yield to maturity, Consumer Price Index (CPI),