Treasury Inflation Protected Securities - TIPS


DEFINITION of 'Treasury Inflation Protected Securities - TIPS'

A treasury security that is indexed to inflation in order to protect investors from the negative effects of inflation. TIPS are considered an extremely low-risk investment since they are backed by the U.S. government and since their par value rises with inflation, as measured by the Consumer Price Index, while their interest rate remains fixed. Interest on TIPS is paid semiannually. TIPS can be purchased directly from the government through the TreasuryDirect system in $100 increments with a minimum investment of $100 and are available with 5-, 10-, and 30-year maturities.


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BREAKING DOWN 'Treasury Inflation Protected Securities - TIPS'

Because a TIPS bond's semiannual inflation adjustments are considered taxable income by the IRS even though investors don't see that money until they sell the bond or it reaches maturity, some investors prefer to get TIPS through a TIPS mutual fund or only hold them in tax-deferred retirement accounts to avoid tax complications.

Purchasing TIPS directly, however, allows investors to avoid the management fees associated with mutual funds. TIPS are also valuable because they are exempt from state and local income taxes.

  1. Inflation

    The rate at which the general level of prices for goods and services ...
  2. Bill Announcement

    An announcement published by the U.S. Treasury regarding the ...
  3. Consumer Price Index - CPI

    A measure that examines the weighted average of prices of a basket ...
  4. Inflation-Indexed Security

    A security that guarantees a return higher than the rate of inflation ...
  5. U.S. Treasury

    Created in 1798, the United States Department of the Treasury ...
  6. Real Rate Of Return

    The annual percentage return realized on an investment, which ...
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