Treasury Inflation-Protected Securities adjust principal with a specified consumer-price index. Their fixed coupon is applied to the adjusted principal, so cash interest changes as principal changes. At maturity, the Treasury applies the security's principal floor under its terms.
Distinguish real yield from coupon
A TIPS can have a positive coupon and a negative real yield if its market price is high enough. Evaluate the price and real yield, not just the stated coupon or an inflation headline.
Work a simplified example
If $1,000 of principal adjusts upward by 3%, it becomes $1,030. A 1% annual coupon applied to that adjusted amount would imply $10.30 annually before timing conventions. Actual payments use published index ratios and the security's schedule.
Understand the remaining risks
TIPS prices can fall when real yields rise. The inflation measure may not match your personal expenses. Buying above the protected principal amount can still expose you to a loss, and selling early subjects you to market prices.
In a taxable account, inflation adjustments can create federal tax effects before maturity. Review the Treasury's tax guidance and your account type. A TIPS fund also has portfolio turnover and does not offer the same personal maturity date as an individual security.
Sources & further reading
Check the linked source for current rules and disclosures. Numerical examples on Stockbok are hypothetical unless explicitly attributed.
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General financial education, not personalized investment or tax advice. Investing involves risk, including loss of principal.