What is a Treasury Inflation-Protected Security (TIPS)?
TIPS are a type of medium to long-term marketable security of 5 to 20 years. They have a fixed interest rate with the value of the principal being adjusted semiannually, based upon changes in the Consumer Price Index – Urban (CPI-U). After purchase, interest payments are paid to your selected payment destination every six months until final maturity. Your investment is always protected from inflation because the interest rate is applied to the adjusted principal, so if inflation occurs, your interest earned increases. You won’t lose money on your investment during a deflationary period either, since Treasury pays the greater of either the inflation-adjusted principal or the original face value of the security. Minimum purchase is $100 with multiples sold in the same increment. The maximum amount for a noncompetitive purchase is $5 million in a single auction.
