Inflation-Linked Certificates of Deposit

AAA

DEFINITION of 'Inflation-Linked Certificates of Deposit'

Federally insured debt securities that are similar to regular certificates of deposit (CDs), but provide investors with inflationary protection via annually variable interest rates that increase or decrease with changes in the consumer price index, a measure of inflation.

INVESTOPEDIA EXPLAINS 'Inflation-Linked Certificates of Deposit'

Because they pose little inflationary risk to the investor, this type of CD offers slightly lower interest rates than regular CDs. This inflation protection together with the regular low default risk of CDs makes for very safe investments. An investor will never realize huge gains with these securities, but they may play a role in a diversified portfolio or serve as an ideal investment for risk-averse investors.

RELATED TERMS
  1. Consumer Price Index - CPI

    A measure that examines the weighted average of prices of a basket ...
  2. Diversification

    A risk management technique that mixes a wide variety of investments ...
  3. Inflation

    The rate at which the general level of prices for goods and services ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. ...
  5. Inflation-Protected Security - ...

    A type of fixed-income investment that guarantees a real rate ...
  6. Risk Averse

    A description of an investor who, when faced with two investments ...
RELATED FAQS
  1. Which asset classes are the most risky?

    Equities is the riskiest class of assets. Dividends aside, they offer no guarantees, and investors' money is subject to the ... Read Full Answer >>
  2. How often is interest compounded?

    Interest can be compounded on any given frequency schedule. Common interest compounding time frames are daily, monthly, semi-annually ... Read Full Answer >>
  3. How do you find accrued interest on a bond?

    A bond is a debt instrument issued by a company, government agency or municipality to raise money. Interest payments are ... Read Full Answer >>
  4. What are the main disadvantages of fixed income securities?

    Fixed-income securities attract investors because they provide guaranteed returns in the form of fixed, regular cash payments. ... Read Full Answer >>
  5. Which factors most influence fixed income securities?

    The main factors that impact the prices of fixed income securities include interest rate changes, default or credit risk, ... Read Full Answer >>
  6. Does the S&P 500 index include dividends?

    The S&P 500 index includes dividends. As of March 2015, the dividend yield for the S&P 500 was 1.91%. This is below ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    Curbing The Effects Of Inflation

    Your investments suffer when general price levels rise. Learn how you can control the damage with IPSs.
  2. Economics

    What You Should Know About Inflation

    Find out how this figure relates to your investment portfolio.
  3. Mutual Funds & ETFs

    Pros & Cons Of Bond Funds Vs. Bond ETFs

    Understanding the pros and cons of bond funds and bond ETFs will help you choose the instrument that is best for building your diversified bond portfolio.
  4. Mutual Funds & ETFs

    Pros and Cons: Preferred Stock ETFs vs. Bond ETFs

    A look at the differences between preferred stock ETFs and bond ETFs and when you should invest in one over the other.
  5. Professionals

    Impact of SEC's New Money Market Fund Rules

    A look at how new rules introduced by the SEC will impact money market funds.
  6. Investing Basics

    What is an Asset Class?

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations.
  7. Bonds & Fixed Income

    Understanding Negative Rates Of Europe's Central Banks

    We are currently seeing negative central bank deposit rates and government and corporate bonds with negative yields, but there are investors buying into these securities. Why?
  8. Economics

    The Fed's Impact On Emerging Markets

    Higher US interest rates could make it more expensive for emerging market borrowers to service their debt commitments.
  9. Investing

    What’s The Essence Of Smart Beta In Fixed Income?

    In essence, smart beta strategies seek to re-write index rules to capture factors, such as value, quality, or low volatility, in their stock portfolios.
  10. Bonds & Fixed Income

    Should Junk Bond ETFs Be a Part of Your Portfolio?

    Should junk bonds be a part of your portfolio? Here's what you need to know.

You May Also Like

Hot Definitions
  1. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  2. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  3. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  4. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  5. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  6. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
Trading Center