Inflation-Linked Certificates of Deposit

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Inflation-Linked Certificates of Deposit

A certificate of deposit issued by the U.S. government that protects the holder from inflation. Most CDs, like most fixed dollar obligations, pay a fixed interest rate periodically and mature at par. While this carries low risk, it exposes investors to the possibility that the inflation rate will outpace the interest rate. In order to protect against this, an inflation-index certificate of deposit states its rate of return as the "inflation rate plus" whatever rate of return it would otherwise give. This means that the rate of return will give the real rather than nominal rate. See also: Real Return Bond, TIPS, Inflation-protected annuity.