Yields on Treasury inflation-protected securities have approached their highest levels of the past two decades. Reporter Imani Moise explains what investors should know before buying these unique bonds.
A: TIPS are U.S. government notes and bonds, but with a key difference. While most Treasurys have a set principal that returns to investors when the bond matures, the principal of TIPS changes with the consumer-price index. Add in a fixed rate of interest paid semiannually, which is applied to the changing principal, and investors can ensure their money will keep pace with rises in the cost of living for years and decades to come.
Some financial advisers say TIPS offer similar benefits to I bonds, but without the $10,000 cap that limits I-bond purchases. Many recommend TIPS for older investors seeking capital preservation over investment returns.
