Since 1997, the US Treasury has been providing Treasury Inflation-Protected Securities (TIPS) as a way to help protect investors against inflation. The Consumer Price Index (CPI-U) is the measuring unit for US Treasury Inflation-Indexed Securities. The CPI-U is what guides the principal amount invested in the US Treasury Inflation-Indexed Securities. That money will either increase with inflation or decrease with deflation.
An investor can make money on US Treasury Inflation-Indexed Securities when the investment matures. The rule is that either an inflation adjusted principal or the original principal (whichever is a larger amount) is paid to the investor. This type of investment does protect the original investment (also known as the principal) from losing any value, however there is no guaranteed return on the investment.
The US Treasury Inflation-Indexed Securities earns and pays interest at a fixed rate two times a year. The interest rate is also determined by the CPI-U and the amount will fluctuate based on the current markets inflationary or deflationary motions.
US Treasury Inflation-Indexed Securities are available for purchase by auction only. According to the official US Treasury website, TreasuryDirect, the auctions schedule is as follows:
The 5-year TIPS are auctioned in April, and as reopenings in October.
The 10-year TIPS are auctioned in January and July, and as reopenings in April and October.
20-year TIPS are auctioned in January, and as reopenings in July. This maturity is not available in Legacy Treasury Direct starting in January 2007.
The reopened security has the same maturity date and interest rate as the original security but has a different issue date and usually a different price.
There are two different ways investors can bid on US Treasury Inflation-Indexed Securities. There are noncompetitive and competitive bids. Noncompetitive bids allow individuals to go directly through TreasuryDirect and the bidder agrees to accept the yield determined at auction to receive the full amount of the security bid.
Additionally, US Treasury Inflation-Indexed Securities can be purchased through broker, financial institution, or those with an established TAAPS account (an application for the exclusive use of financial institutions that provides direct access to U.S. Treasury auctions) via a competitive bid. With a competitive bid, the bidder states the yield that is acceptable. The bid may or not be accepted.
