TIPS Calculator United States

What the TIPS calculator does

Treasury Inflation-Protected Securities are U.S. government bonds whose principal is linked to the Consumer Price Index, so it rises as prices rise. The fixed coupon rate is paid on that adjusted principal, so interest income grows with inflation even though the rate never changes. Enter the original principal (par value), the fixed real coupon rate, the reference CPI at issue and the current reference CPI, and the calculator returns the adjusted principal, the coupon income and the redemption value.

A conventional Treasury bond pays a fixed dollar coupon and returns a fixed principal, so inflation erodes its real value. TIPS move with the price level, preserving the real value of both principal and income.

How the inflation adjustment works

The index ratio is the current reference CPI divided by the CPI at issue. If the CPI was 300 at issue and is 315 now, the ratio is 1.05: prices have risen 5% and so has the principal.

• Index ratio = current CPI / reference CPI.
• Adjusted principal = original principal x index ratio.
• Inflation compensation = adjusted principal minus original principal.

The ratio can be above or below one, so the principal rises with inflation and falls with deflation. The Treasury publishes a daily index ratio, but the idea is the same. Reference CPI values are available from Treasury and inflation data.

Coupon income on adjusted principal

The calculator multiplies the adjusted principal by the coupon rate for the annual coupon, then halves it for the semi-annual payment, since TIPS pay interest twice a year. With a 1.5% coupon, $10,000 of original principal pays $150 a year. After a 5% inflation adjustment the principal is $10,500 and the coupon becomes $157.50. The rate is unchanged, but the dollar income rose with the base, and over years of steady inflation the payments keep climbing.

The deflation floor at maturity

At maturity a TIPS pays the greater of its adjusted principal or its original par value. If cumulative inflation is positive, you get the higher adjusted principal; if prices have fallen below the level at issue, you still get your original principal. The calculator's redemption value never drops below the amount you started with.

The floor covers only the principal at maturity. Coupons are still paid on the adjusted principal, which can dip during deflation, so income can fall. And if you buy TIPS on the secondary market after inflation has accrued, you pay for that accrued principal, but the floor still guarantees only the original par; a bond bought well above par carries some risk if long deflation pulls the adjusted principal back down.

Reading your result

The output shows the adjusted principal, the inflation compensation, the annual and semi-annual coupon, the redemption value, the index ratio and the coupon yield on par. Enter a current CPI below the reference to see the deflation floor at work.

This is a snapshot based on the CPI figures you enter, not a forecast of inflation. Your real return also depends on the price you paid, which can differ from par on the secondary market, and on tax, since the annual principal increase is taxable before you receive it. CPI figures update regularly, so recalculate with current values.

This is general information only and not financial or investment advice. Confirm specifics with a qualified professional.

About This TIPS Calculator

Use this TIPS calculator to get an instant estimate based on the figures you enter. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.