Wednesday, October 29, 2008

Treasury Inflation-Protected Securities, or TIPS

Individual - Treasury Inflation-Protected Securities (TIPS)


Treasury Inflation-Protected Securities, or TIPS, provide protection against inflation. The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. When a TIPS matures, you are paid the adjusted principal or original principal, whichever is greater.
TIPS pay interest twice a year, at a fixed rate. The rate is applied to the adjusted principal; so, like the principal, interest payments rise with inflation and fall with deflation.
You can buy TIPS from us in TreasuryDirect and Legacy Treasury Direct through non-competitive bidding. Starting in January 2007, the 20-year TIPS is no longer sold in Legacy Treasury Direct, but it continues to be available in TreasuryDirect.

NOTE: At this time, only individuals can hold accounts in TreasuryDirect.

9 comments:

Rafe A. Schaefer said...

I like the idea of a inflation protected security. The notion that the interest rate on a security would be tantamount to the "real" (inflation adjusted) interest rate seems obvious to individuals unfamiliar with the way interest rates work.

Receiving a guaranteed return on a dollar is a very lucrative investment opportunity. Certainly, it takes away one of the biggest risks when dealing with the structure of interest rates. That risk being that long term returns and inflation rates are uncertain and investors attempt to mitigate that uncertainty by keeping their investments in the short term.

Rafe A. Schaefer said...

I like the idea of a inflation protected security. The notion that the interest rate on a security would be tantamount to the "real" (inflation adjusted) interest rate seems obvious to individuals unfamiliar with the way interest rates work.

Receiving a guaranteed return on a dollar is a very lucrative investment opportunity. Certainly, it takes away one of the biggest risks when dealing with the structure of interest rates. That risk being that long term returns and inflation rates are uncertain and investors attempt to mitigate that uncertainty by keeping their investments in the short term.

WestonD. said...

Inflation protected securities would be a good idea. Also getting a grauranteed return on a dollar would take away the risks. Long term returns and inflation rates are uncertain and having investors try and figure this out by keeping their investments short term. I pretty much agree sentence for sentence with Rafes comment...

Alex Moseley said...

This definitely seems like a good idea and far more safe than general investing. There is less chance for a greater return, but obviously much less risk involved.

TaDonne' said...

I find this protected security insuring also. I wonder how much it would cost to get a TIP...Might be a silly question, but I wonder how does this security compare to a bond?

Maggie said...

I like how the principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. It makes sense that you are paid the adjusted principal or original principal, whichever is greater, when a TIPS matures. TIPS pay interest twice a year, at a fixed rate. The rate is applied to the adjusted principal; so, like the principal, interest payments rise with inflation and fall with deflation.

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