Definition
U.S. Treasury bonds whose principal adjusts with the Consumer Price Index, so both the principal and the interest paid on it rise with inflation. At maturity you receive the greater of the adjusted or original principal, backed by the federal government.
Why it matters
Ordinary bonds quietly lose purchasing power in inflationary years; TIPS are the one government-guaranteed asset built to keep up. They anchor the safe side of a portfolio for savers whose biggest fear is prices, not markets.
Example
A saver buys $10,000 of TIPS. After a year of 3% inflation the principal is adjusted to $10,300, and the coupon is paid on that larger amount. A regular bond would still pay interest on $10,000 that now buys 3% less.
Put it into practice
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.