1. What is TIPS Interest?

TIPS (Treasury Inflation-Protected Securities) pay interest semi-annually at a fixed rate. The interest is applied to the inflation-adjusted principal, so interest payments vary with inflation.

2. How TIPS Interest is Calculated

The calculator uses the TIPS interest formula:

Where:

• \( Adjusted\ Principal \) — Inflation-adjusted principal amount
• \( Rate \) — Fixed interest rate (annual)

Explanation: The fixed rate is divided by 2 because interest is paid semi-annually. The principal is adjusted for inflation based on the Consumer Price Index (CPI).

3. Importance of TIPS Interest Calculation

Details: Calculating TIPS interest helps investors understand their expected returns and how inflation protection affects their investment income.

4. Using the Calculator

Tips: Enter the current inflation-adjusted principal and the fixed interest rate. The calculator will show the semi-annual interest payment.

5. Frequently Asked Questions (FAQ)

Q1: How often is TIPS interest paid?
A: Interest is paid semi-annually (every 6 months).

Q2: How is the principal adjusted?
A: The principal is adjusted based on changes in the CPI to maintain purchasing power.

Q3: What happens if there's deflation?
A: The principal can decrease, but at maturity you'll receive at least the original principal.

Q4: Are TIPS interest payments taxable?
A: Yes, both the interest payments and any increase in principal are taxable as income in the year they occur.

Q5: Where can I find my TIPS' adjusted principal?
A: The Treasury Department updates adjusted principal values monthly on their website.