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1Clear out junk files and repair common Windows errors2Scan for outdated or missing drivers - takes under a minute3Repair Windows errors before they cause bigger problemsFor U.S. Treasury investors, the key difference is that Treasury Inflation-Protected Securities (TIPS) adjust their principal with a specified measure of U.S. inflation, while ordinary nominal Treasury notes and bonds keep principal fixed. TIPS can help protect purchasing power over a matching holding period, but their market price can still fall before maturity. The details below apply to U.S. Treasuries; inflation-linked bonds in other countries may use different indexes, terms, and tax rules.
How TIPS and ordinary Treasury bonds differ
| Feature | TIPS | Ordinary nominal Treasury notes and bonds |
|---|---|---|
| Principal during the bond’s term | Adjusted with the non-seasonally adjusted U.S. City Average All Items CPI-U; it can rise or fall. U.S. Treasury, TreasuryDirect | Fixed at the bond’s original principal amount. U.S. Treasury, TreasuryDirect |
| Coupon rate and payment | The coupon rate is fixed at auction, but the semiannual dollar payment changes because it is calculated on inflation-adjusted principal. U.S. Treasury, TreasuryDirect | The coupon rate and semiannual dollar payment are fixed, based on par. U.S. Treasury, TreasuryDirect |
| Payment at maturity | The greater of adjusted principal or original principal. U.S. Treasury, TreasuryDirect | Original principal. U.S. Treasury, TreasuryDirect |
| Common maturities | 5, 10, and 30 years. U.S. Treasury, TreasuryDirect; accessed October 7, 2026 | Treasury notes generally have maturities of 2 to 10 years; bonds have maturities of 20 or 30 years. U.S. Treasury, TreasuryDirect |
How TIPS inflation adjustments and interest work
The index is CPI-U, not your personal inflation rate
Treasury adjusts TIPS principal using the non-seasonally adjusted U.S. City Average All Items Consumer Price Index for All Urban Consumers (CPI-U), published monthly by the Bureau of Labor Statistics. That index may not move in line with the prices in any one household’s spending basket. U.S. Treasury, TreasuryDirect
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The rate stays fixed; the dollar payment does not
Treasury sets a TIPS coupon rate at auction. It applies that rate to the adjusted principal, so the interest amount changes as principal changes. By contrast, ordinary Treasury notes and bonds pay interest on fixed principal, with a fixed coupon rate. Both make interest payments every six months. U.S. Treasury, TreasuryDirect U.S. Treasury, TreasuryDirect
Deflation can reduce principal during the term
If the index declines, TIPS principal can decline too. At maturity, however, Treasury pays at least the original principal amount. That maturity floor does not keep the bond’s price from falling below what you paid if you sell before maturity. U.S. Treasury, TreasuryDirect
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Why a TIPS price can fall before maturity
TIPS and ordinary Treasuries are marketable securities: an investor can sell them before maturity, but the sale price depends on market conditions. Bond prices can move when interest rates or yields change. If market yields rise, an existing bond with a lower yield may have to sell at a discount. A buyer who sells early can receive less than the purchase price or face value, even if the security is a TIPS. SEC Investor.gov, Bond FAQs
TIPS’ inflation adjustment is therefore not a guarantee of a stable investment value or a positive return over every holding period. It changes the principal according to the specified index; it does not prevent market-price losses.
What the breakeven inflation spread can—and cannot—tell you
Investors often compare the yields of nominal Treasuries and TIPS with similar maturities. The difference is commonly called the breakeven inflation rate: it is a market comparison, not a guaranteed forecast or a promise that one security will outperform. It reflects more than expected inflation alone, and it is not a stand-alone buy-or-sell signal.
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On October 6, 2026, the U.S. Treasury’s 10-year nominal par yield was 5.27%, and its 10-year real par yield was 2.91%. Subtracting the real yield from the nominal yield gives an approximate spread of 2.36 percentage points. These are Treasury curve figures based on indicative bid-side quotations, not prices from actual transactions; the spread is a calculation from those figures, not a separately published Treasury forecast. The yields change frequently, so check the current Treasury curves before using them in a decision. U.S. Department of the Treasury, daily Treasury yield curve, October 6, 2026 U.S. Department of the Treasury, daily Treasury real yield curve, October 6, 2026
Taxes and cash-flow planning
For U.S. tax purposes, Treasury says TIPS interest and increases in principal are subject to federal tax in the year incurred, while Treasury interest is exempt from state and local income taxes. Because an inflation-related principal increase may be paid only at maturity, an investor in a taxable account can owe federal tax before receiving that principal in cash. Consider the tax timing when planning cash needs, and consult current IRS guidance or a tax professional about your circumstances. U.S. Treasury, TreasuryDirect U.S. Treasury, TreasuryDirect, TIPS in Depth
How to choose between TIPS and ordinary Treasuries
- Start with the liability or goal. If you want principal linked to U.S. CPI-U over a defined horizon, TIPS offer that adjustment. If predictable coupon dollars matter more, nominal Treasuries have fixed principal and interest payments.
- Compare similar maturities. Compare a TIPS real yield with a nominal Treasury yield for a similar term, while treating the difference as an uncertain market comparison rather than a forecast.
- Match the holding period to the maturity. Either type can fluctuate in market value before maturity; selling early can produce a loss relative to your cost or face value.
- Account for taxes and inflation exposure. TIPS use CPI-U, which may differ from personal expenses, and taxable-account investors should plan for tax on principal adjustments before maturity.
- Understand purchase access and terms. Treasury lists TIPS in 5-, 10-, and 30-year terms, with a $100 minimum purchase and $100 increments; they pay interest semiannually. Marketable TIPS can be bought at auction through TreasuryDirect or through banks, brokers, and dealers, and sold in the secondary market. U.S. Treasury, TreasuryDirect; accessed October 7, 2026
Do not confuse TIPS with I Bonds
TIPS are marketable Treasury securities whose prices can change in the secondary market. Series I savings bonds are a distinct, nonmarketable product with different terms; they are not another name for TIPS. U.S. Treasury, TreasuryDirect
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