Treasury Inflation Protected Securities - TIPS

AAA

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.

INVESTOPEDIA EXPLAINS '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. Bill Announcement

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

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

    A security that guarantees a return higher than the rate of inflation ...
  4. Inflation

    The rate at which the general level of prices for goods and services ...
  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 FAQS
  1. 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 >>
Related Articles
  1. 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.
  2. Economics

    Why The Consumer Price Index Is Controversial

    Find out why economists are torn about how to calculate inflation.
  3. 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.
  4. 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.
  5. Options & Futures

    Introduction To Inflation-Protected Securities

    Inflation is an enemy to investors - except to those who invest in IPS, which guarantee a real rate of return with no credit risk.
  6. Active Trading

    Shield Your Portfolio From Inflation For Real Returns

    Inflation-protected securities are part of the equation, but they're not a perfect solution.
  7. Options & Futures

    5 Inflation-Beating Bond Picks

    Look beyond traditional bonds when planning long-term. The alternatives can be extremely rewarding.
  8. Bonds & Fixed Income

    Asset Allocation In A Bond Portfolio

    An investor's fixed-income portfolio can easily beat the average bond fund. Learn how and why!
  9. Home & Auto

    The Bear On Bonds

    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.
  10. Retirement

    Hedge Your Bets With Inflation-Linked Bonds

    ILBs such as TIPS and I-Bonds allow investors to curb the corrosive effects of inflation and increase portfolio diversification.

You May Also Like

Hot Definitions
  1. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  2. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  3. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  4. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  5. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  6. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
Trading Center