Treasury Inflation-Protected Securities, commonly called TIPS, are marketable debt securities issued by the U.S. Treasury. Their principal rises or falls with changes in the Consumer Price Index for All Urban Consumers (CPI-U), subject to Treasury's calculation conventions. A fixed coupon rate is applied to the adjusted principal.
How inflation-adjusted principal works
Each TIPS has an original principal amount and a fixed coupon rate. Treasury calculates an index ratio using the applicable CPI-U reference values. Multiplying original principal by that ratio produces the inflation-adjusted principal used for interest and maturity calculations.
When CPI-U rises, adjusted principal rises. When CPI-U falls, adjusted principal can decline during the security's life. At maturity, Treasury pays the greater of the inflation-adjusted principal or the original principal amount. That maturity floor does not prevent interim adjusted principal or market prices from falling.
How coupon payments change
The coupon rate stays fixed, but the dollar coupon can change because it is paid on adjusted principal. TIPS generally pay interest every six months.
Simplified coupon illustration
Assume original principal of $1,000, a 1% annual coupon and an index ratio of 1.04. Adjusted principal is $1,040. The annual coupon amount at that adjustment is $10.40, or $5.20 per semiannual payment. Actual accrual and settlement calculations use Treasury's detailed conventions.
This differs from a conventional Treasury note, where fixed principal and a fixed coupon normally produce fixed dollar interest payments.
Real yields and market prices
A TIPS yield is commonly described as a real yield because the security separately adjusts principal for CPI-U. Real yields can rise or fall, and TIPS market prices move inversely with their own yields. A holder who sells before maturity can receive more or less than the purchase price.
Comparing a conventional Treasury yield with a TIPS real yield produces a market-based measure often called breakeven inflation. It is a simplified comparison influenced by maturity, liquidity, inflation risk premiums and other factors—not a reliable forecast by itself.
TIPS can lose market value when real yields rise. The principal-adjustment mechanism and the maturity principal floor do not guarantee a profit on a sale before maturity.
TIPS versus I Bonds
| Feature | TIPS | Series I savings bonds |
|---|---|---|
| Inflation mechanism | Principal adjusts with CPI-U | Composite rate includes a semiannual inflation component |
| Coupon or accrual | Fixed coupon on adjusted principal, generally paid semiannually | Interest accrues and compounds inside the bond |
| Market trading | Marketable; price can fluctuate | Non-marketable; no secondary-market quotation |
| Access before maturity | Can be sold at the available market price | 12-month lockup; possible three-month interest penalty before five years |
| Original terms | Currently issued in 5-, 10- and 30-year maturities | Earns interest for up to 30 years |
| Annual purchase cap | No savings-bond-style annual cap | General $10,000 electronic annual limit per eligible registrant |
Read the I Bond guide for the composite-rate formula and savings-bond restrictions. For a broader overview, see U.S. savings bonds explained.
Deflation and the maturity floor
Deflation can reduce adjusted principal and subsequent coupon amounts. The rule that pays at least original principal at maturity applies at maturity, not as a continuous market-price guarantee. If deflation is later followed by inflation, the index ratio can rise again.
A purchased TIPS can also trade above or below its adjusted principal. The maturity payment rule should not be confused with a promise to repay an investor's exact secondary-market purchase price.
TIPS tax considerations
TIPS interest is generally subject to federal income tax and exempt from state and local income tax. Increases in inflation-adjusted principal can also create federally reportable income in the year they occur, even though that adjusted principal is not paid until maturity or sale. This is sometimes described as “phantom income.”
Tax reporting can differ when TIPS are held directly, through a fund, or in a tax-advantaged account. IRS Publication 550 and account tax documents are the appropriate starting points. Bond Atlas provides general education, not individual tax advice.
Individual TIPS versus TIPS funds
An individual TIPS has a defined maturity and contractual Treasury payment terms. A TIPS mutual fund or ETF holds a portfolio and has no personal maturity date for the shareholder. Fund share prices, distributions, duration and expenses vary. A fund can provide diversification and reinvestment, but it does not reproduce the experience of holding one security to its maturity.
TIPS research checklist
- Identify the maturity, coupon, issue and dated-date details.
- Check the current index ratio and adjusted principal from a reliable source.
- Distinguish real yield from nominal Treasury yield.
- Review market-price risk if the security may be sold before maturity.
- Understand deflation treatment and the maturity principal floor.
- Read federal tax rules for coupon income and principal adjustments.
- For a fund, review duration, expenses and portfolio methodology separately.
Official sources
- TreasuryDirect — Treasury Inflation-Protected Securities: structure, interest and maturity rules.
- TreasuryDirect — Auctions: official TIPS offering documents and results.
- Bureau of Labor Statistics — CPI: index releases and methodology.
- IRS Publication 550: investment income and inflation-indexed debt instruments.
Reviewed November 6, 2026. Examples are simplified and do not represent a current quote or recommendation.