Treasury inflation-protected securities (TIPS)

TIPS, or Treasury inflation-protected securities, are inflation-indexed Treasury bonds and notes. They protect you against deflation as well.

TIPS pay a fixed rate of interest like traditional Treasurys, but their principal, to which the interest rate is applied, is adjusted twice a year to reflect changes in inflation as measured by the Consumer Price Index (CPI).

Twice a year the interest rate is multiplied by the new principal, so the interest you receive will increase or decrease as well. Interest is federally taxable, as are any increases in the value of your principal. However, those increases are not paid until the end of the term.

At maturity, you're repaid the inflation-adjusted principal or par value, whichever is more.