Treasury-Inflation Protected Securities, also known as TIPS, are securities whose principal is tied to the Consumer Price Index. With inflation, the principal increases. With deflation, it decreases. When the security matures, the U.S. Treasury pays the original or adjusted principal, whichever is greater.
TIPS pay interest every six months, based on a fixed rate applied to the adjusted principal. Each interest payment is calculated by multiplying the adjusted principal by one-half the interest rate.
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Treasury-Inflation Protected Securities
Treasury-Inflation Protected Securities, also known as TIPS, are securities whose principal is tied to the Consumer Price Index. With inflation, the principal increases. With deflation, it decreases. When the security matures, the U.S. Treasury pays the original or adjusted principal, whichever is greater.
TIPS pay interest every six months, based on a fixed rate applied to the adjusted principal. Each interest payment is calculated by multiplying the adjusted principal by one-half the interest rate.