Treasury Inflation-Protected Securities (TIPS)

Treasury Inflation-Protected Securities (TIPS) are U.S. government bonds designed to protect investors from inflation. Their principal value adjusts based on changes in the Consumer Price Index (CPI). When inflation rises, the principal increases; when deflation occurs, it decreases. Interest payments, made semiannually, are calculated on the adjusted principal, so they also rise with inflation. At maturity, investors receive the greater of the adjusted or original principal, ensuring protection against loss of purchasing power. TIPS are considered low-risk investments, backed by the U.S. government, and are available in 5-, 10-, and 30-year terms. They’re sensitive to interest rate changes and may have lower yields than other bonds when inflation is low.