What Are Treasury Inflation-Protected Securities (TIPS)?
Quick Answer
TIPS are a type of U.S. Treasury bond that’s indexed to inflation. When inflation is high, the principal value of the bond increases (and vice versa). They generally don’t produce returns that are as robust as higher-risk assets like stocks, but they can help you maintain spending power during times of high inflation.
Buying Treasury Inflation-Protected Securities (TIPS) allows you to add low-risk government bonds to your portfolio. The principal value goes up during times of rising inflation and down when inflation declines.
The predictable nature of TIPS can provide peace of mind if you're looking for a lower-risk, long-term investment—especially if consumer prices are rising at an above-average pace. TIPS are also insured by the U.S. Treasury, making it highly unlikely that you'll lose money.
How Do Treasury Inflation-Protected Securities Work?
This type of government bond is indexed to inflation and provides a fixed interest payment every six months. You'll receive a higher payout when inflation is up, and a lower payment during periods of deflation. TIPS are issued in terms of five, 10 or 30 years.
Returns are generally lower than stock market returns, but TIPS offer stability and consistent income while protecting against inflation. When the bond matures, you'll get back the current adjusted principal or the original principal (whichever is more).
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TIPS Bonds vs. I Bonds
TIPS are different from Series I savings bonds, which use two interest rates—one that's fixed and another that fluctuates with inflation. For Series I bonds issued from November 1, 2025, to April 30, 2026, this composite rate is 4.03%.
You can purchase up to $10,000 in electronic I bonds per year. If you purchase a TIPS bond at auction through the U.S. Treasury, you're limited to $10 million in a noncompetitive bid (or up to 35% of the offering amount if it's a competitive bid).
| TIPS Bonds | I Bonds | |
|---|---|---|
| Where to purchase | Via auction through TreasuryDirect.gov or through an investment brokerage | Only through TreasuryDirect.gov |
| Inflation rate adjustment | The principal amount rises and falls with inflation | The inflation interest rate is recalculated every six months |
| Inflation protection | If inflation jumps, your principal value (and interest payments) will increase | If inflation rises, the composite interest rate will increase during the next adjustment period |
| Interest payments | Fixed, paid every six months | Interest accrues for up to 30 years and is paid when you cash out the I bond (you must hold it for at least 12 months) |
| Term lengths | 5, 10 or 30 years | Up to 30 years |
Who Are TIPS Best For?
TIPS bonds aren't for everyone, but they may be well suited for:
- Risk-averse investors: Returns typically lag behind higher-risk assets like stocks and real estate, but that may be worth the trade-off if you're a conservative investor who wants to avoid market volatility. Maintaining a diversified portfolio can help you generate growth elsewhere.
- Those who are approaching retirement or already retired: Most retirees live on a fixed income and are focused on preserving their wealth and keeping up with inflation. Once you're in your 60s, T. Rowe Price recommends an asset allocation of 30% to 50% bonds, 45% to 65% stocks and up to 10% cash—and to get even more conservative in your 70s and beyond.
- Investors looking for diversification: Adding TIPS to your portfolio can help spread out investment risk and add some variation to your asset classes.
Pros and Cons of TIPS Bonds
Like other government bonds, TIPS have important pros and cons to consider. You ultimately want to choose investments that support your risk tolerance, age and investment goals.
Pros
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Risk is low: TIPS offer fixed interest payments and carry very little risk. Even if the principal value at the time of maturity is lower than your initial investment, you'll still get back what you originally paid.
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Helps protect against inflation: As consumer prices increase, your dollar won't go as far as it used to. TIPS can help safeguard your purchasing power and prevent inflation from eating away at your wealth.
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Flexibility: If you decide not to hold a TIPS bond until its full maturity date, you can sell it on the secondary market. That liquidity makes it different from other low-risk investments like certificates of deposit (CDs).
Cons
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Deflation can work against you: This is when the costs of goods and services begin falling, resulting in negative inflation. If this happens, your principal value will also decline—and your interest payments will follow suit.
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Potential losses if sold before maturity: TIPS bonds generally lose value when interest rates increase. That could result in losses if you sell them before they mature.
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You may owe taxes if inflation rises: If inflation ticks upward, and your principal value goes up with it, that increase will count as taxable income for the year. Earned interest is taxed at the federal level but exempt from state and local taxes.
How to Buy Treasury Inflation-Protected Securities
TIPS are available through TreasuryDirect.gov. You can also buy them through a broker or bank. If you're looking for extra diversification, you might consider a TIPS mutual fund or exchange-traded fund (ETF). These offer a convenient way to purchase a variety of inflation-protected securities in one transaction.
Frequently Asked Questions
The Bottom Line
TIPS bonds offer a low-risk way to invest while pushing back against inflation. They provide consistent interest payments and are generally geared toward conservative investors and those who are approaching retirement or already retired. Whether buying Treasury Inflation-Protected Securities is right for you will depend on your financial goals, risk tolerance and investment timeline.
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About the author
Marianne Hayes
Marianne Hayes is a longtime freelance writer who's been covering personal finance for nearly a decade. She specializes in everything from debt management and budgeting to investing and saving. Marianne has written for CNBC, Redbook, Cosmopolitan, Good Housekeeping and more.
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