How TIPS Are Built to Outpace Inflation
Treasury Inflation-Protected Securities (TIPS) carry a low coupon rate, but the key feature is that the principal itself grows each year with the Consumer Price Index (CPI). Interest is paid on the currently adjusted principal, so as inflation rises, your coupon payments grow along with it. At maturity you receive the inflation-adjusted principal — and thanks to the deflation floor, you're guaranteed to receive at least the original face value even if deflation occurred during the holding period. In short, the coupon rate is your guaranteed real return, and inflation is added on top of that.
How the Calculation Works
| Step | Item | Formula |
|---|---|---|
| 1 | Adjusted Principal | Face Value × (1+Inflation)^Years |
| 2 | Deflation Floor | Repaid at Face Value if adjusted principal is lower |
| 3 | Coupon Interest | Sum of Adjusted Principal × Coupon each year |
| 4 | Yield | Nominal (includes inflation) vs. Real (coupon only) |
This calculator assumes a constant annual inflation rate, which simplifies the actual CPI path and secondary market pricing. It's a reference estimate only — check actual CPI data and current TIPS auction terms before investing.
Frequently Asked Questions
It's already set to reflect the real yield excluding inflation — inflation gets added separately to the principal.
No, TIPS include a deflation floor guaranteeing at least your original face value at maturity.
Real yield is your purchasing-power return after inflation; nominal yield includes the inflation adjustment.
※ Actual returns depend on real CPI data and secondary market pricing. This is a simplified estimate for reference only.