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What are CPI-Indexed Treasury Notes (TIPS)?
TIPS are a series of inflation-adjusted 10-year notes that were first issued by the U.S. Treasury in 1997. They help protect investors from inflation by linking the principal payment to the consumer price index. The interest payment is constant over the 10 years, but the principal is increased by the same percentage that the CPI increases during the prior year. The interest payment increases as well, since it’s calculated on a higher principal balance.
One of the drawbacks of the new notes is that you pay taxes each year on the interest payment and on the increase in principal -- even though you don’t get the interest or increased principal until the note matures.Return to Questions
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