Inflation-Linked Certificates of Deposit

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.

BREAKING DOWN '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.