Treasury Inflation-Protected Security (TIPS)

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One type of government security whose payments are tied to inflation; specifically, to theConsumer Price Index for All Urban Consumers (CPI-U). Investors buy TIPS and then are paid interest every six months on the security’s inflation-adjusted principal. When a TIPS matures, the owner is paid the inflation-adjusted principal or, if deflation has occurred, the original principal. TIPS are issued in terms of 5, 10, and 20 years.