Treasury Inflation Protected Securities - TIPS

Treasury Inflation Protected Securities - TIPS

A special type of Treasury note or bond that offers protection from inflation. Like other Treasuries, an inflation-indexed security pays interest every six months and pays the principal when the security matures. The difference is that the coupon payments and underlying principal are automatically increased to compensate for inflation as measured by the consumer price index (CPI). Also referred to as "Treasury inflation-indexed securities".

Notes:

If U.S. Treasuries are the world's safest investments, then you might say that TIPS are the safest of the safe. This is because your real rate of return, which represents the growth of your purchasing power, is guaranteed. The downside is that, because of this safety, TIPS offer a low return.

Other countries have similar securities. For example, in Canada this is known as a "real return bond" (RRB).

See also: CPI, Inflation, Inflation-Indexed Security, Inflation-Protected Security - IPS, Real Rate of Return, U.S. Treasury