Treasury Inflation Protected Securities - TIPS

Loading the player...

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.

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.

RELATED TERMS
  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. Real Rate Of Return

    The annual percentage return realized on an investment, which ...
  6. U.S. Treasury

    Created in 1798, the United States Department of the Treasury ...
Related Articles
  1. Bonds & Fixed Income

    5 Fixed Income Plays After the Fed Rate Increase

    Learn about various ways that you can adjust a fixed income investment portfolio to mitigate the potential negative effect of rising interest rates.
  2. Bonds & Fixed Income

    The Top 5 Long-Term Bond Funds for 2016

    Understand how long-term bond mutual funds can benefit an investor's portfolio, and learn the best long-term bond mutual funds for 2016.
  3. Retirement

    4 Roth IRAs with the Lowest Expense Ratios (SCHB, VTI)

    Discover why funds with low expense ratios are important for retirement portfolios, and find out about some of the lowest cost options available for a Roth IRA.
  4. Home & Auto

    How To Choose The Right Bond For You

    Bond investing is a stable and low-risk way to diversify a portfolio. However, knowing which types of bonds are right for you is not always easy.
  5. Mutual Funds & ETFs

    Top 5 TIPS ETFs

    Learn about exchange-traded funds that invest in U.S. Treasury inflation-protected securities of different durations and yields to maturity.
  6. Mutual Funds & ETFs

    The Top 4 ETFs For Investing in US Government Bonds (SHY, ITE)

    Discover the top four ETFs that invest in U.S. government bonds with maturities ranging from zero to 25 years, including nominal and inflation-protected bonds.
  7. Investing Basics

    Treasury Inflation-Protected Securities (TIPS)

    Treasury inflation-protected securities are treasury securities that make adjustments for inflation as reflected in the Consumer Price Index.
  8. Bonds & Fixed Income

    Introduction To Treasury Inflation-Protected Securities (TIPS)

    If you want to protect your portfolio from inflation, all you need are a few TIPS.
  9. Economics

    Why The Consumer Price Index Is Controversial

    Find out why economists are torn about how to calculate inflation.
  10. Retirement

    7 Tools For Rebuilding Retirement Savings

    If your nest egg has taken a hit, these conservative investments could help get you back on track.
RELATED FAQS
  1. What kind of securities should a risk-averse investor buy?

    While most investors are focused on investment options with high rates of return, some individuals are more concerned with ... Read Full Answer >>
  2. What is the safest investment?

    Due to the variety of options on the market and the unpredictability of the economic climate, it is difficult to identify ... Read Full Answer >>
  3. What are the maximum Social Security disability benefits?

    The average Social Security disability benefit amount for a recipient of Social Security Disability Insurance (SSDI) in 2 ... Read Full Answer >>
  4. When is the best time to invest in inflation-protected securities?

    Investment timing decisions are among the most challenging faced by investors as they have a significant impact on ultimate ... Read Full Answer >>
  5. How do I calculate the future value of an annuity?

    When planning for retirement, it is important to have a good idea of how much income you can rely on each year. There are ... Read Full Answer >>
  6. Have hedge funds eroded market opportunities?

    Hedge funds have not eroded market opportunities for longer-term investors. Many investors incorrectly assume they cannot ... Read Full Answer >>
Hot Definitions
  1. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  2. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  3. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  4. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  5. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
Trading Center