Unlike an I Bond’s rate adjusting with inflation, a TIPS bond’s *principal* adjusts instead — the coupon rate stays fixed, applied to a growing (or shrinking) principal.
How it works
The index ratio (current CPI-U divided by the CPI-U at issuance) applied to the original principal gives the inflation-adjusted principal. The fixed coupon rate applied to that adjusted principal, divided by two, gives each semi-annual interest payment.
What this does not include
At maturity only, the Treasury pays the greater of the adjusted or original principal, protecting against deflation — this calculator’s semi-annual interest figure uses the actual (unfloored) adjusted principal along the way, not that maturity-only floor.
How to use this calculator
- Enter original principal, base CPI-U, current CPI-U, and the fixed coupon rate.
Frequently asked questions
Why does the dollar interest payment change even though the coupon rate is fixed?
Because the fixed rate is applied to a principal that itself moves with inflation — as the adjusted principal grows, the same percentage rate produces a larger dollar payment.
What happens to TIPS during deflation?
The adjusted principal can fall below the original principal during deflation, reducing interest payments along the way — but at maturity, the Treasury guarantees payment of at least the original principal.
Are TIPS interest payments taxable?
Yes — both the semi-annual interest and the annual increase in principal (even though not received in cash until maturity or sale) are generally taxable as income each year, a notable “phantom income” consideration for TIPS holders.
