Treasury Inflation Protected Securities (TIPS)

TIPS are marketable securities whose principal (original investment) is adjusted every six months based on changes in the CPI (Consumer Price Index ) (see(Economic Indicators & Other Causes That Can Affect Stock Prices Other Than Company News).  TIPS pay interest every six months (twice a year) and are issued with maturities of five, ten, and twenty years.

TIPS provide protection against inflation.  TIPS’ principal value increases if there’s inflation, and decreases if there’s deflation, as measured by the CPI.  When the TIPS mature, you’re paid the adjusted principal or original, whichever is greater.