Inflation is back in the headlines, and your savings account might not be keeping up. The Bureau of Labor Statistics reported that consumer prices climbed 4.2% over the twelve months ending in May 2026, with energy costs doing most of the damage — the energy index alone accounted for over sixty percent of the monthly increase. If you're watching your grocery bill and gas receipts creep higher each month, you're not imagining things.
So what can you actually do about it as an investor? Enter TIPS — Treasury Inflation-Protected Securities. They're one of the most underused tools in a regular investor's toolkit, and right now might be one of the best times to understand how they work.
What Are TIPS, Exactly?
TIPS are bonds issued by the U.S. Treasury, just like regular Treasury bonds. The key difference: their principal value adjusts with inflation.
Here's the simple version. When you buy a regular Treasury bond, you get a fixed interest rate on a fixed amount. If inflation rises, the purchasing power of those payments shrinks. With TIPS, the principal itself rises alongside the Consumer Price Index (CPI). Your interest payments grow too, because they're calculated on that higher principal.
Let's say you buy $10,000 in TIPS and inflation runs 4% over the next year. Your principal adjusts to $10,400. The fixed interest rate you were promised now applies to $10,400 instead of $10,000. You get more dollars, and those dollars keep pace with what things actually cost.
At maturity, the Treasury pays you back either the inflation-adjusted principal or your original investment — whichever is higher. That means even in a rare deflationary period, you won't get back less than what you put in.
Why TIPS Matter Right Now
The Federal Reserve held interest rates steady at 3.50%-3.75% at its June 2026 meeting — the fourth consecutive hold. Meanwhile, some market watchers are pricing in a possible rate hike later this year, a sharp reversal from early 2026 when most expected cuts. The culprit? Persistent inflation driven largely by energy prices.
When inflation outpaces what you earn on savings, you lose purchasing power even while your account balance grows. A high-yield savings account paying 4.3% sounds great until you realize inflation is running at 4.2%. Your real return — what you actually gain after accounting for rising prices — is barely positive.
TIPS solve this by design. As of mid-June 2026, a 10-year TIPS offers a real yield of about 2.20%, according to Federal Reserve data. That 2.20% is your return on top of whatever inflation turns out to be. If inflation averages 4% over the next decade, your effective return would be roughly 6.2%. If inflation drops to 2%, you'd earn about 4.2%. Either way, you come out ahead of inflation by the same margin.
How TIPS Compare to I Bonds and Regular Treasuries
If you've read our guide on
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Purchase limits
I bonds cap you at $10,000 per person per year through TreasuryDirect (plus $5,000 in paper bonds via your tax refund). TIPS have no practical purchase limit, making them the go-to choice if you want serious inflation protection beyond what I bonds allow.
Liquidity
TIPS trade on the secondary market, so you can sell them before maturity — though you may get more or less than you paid depending on where interest rates have moved. I bonds can't be sold on a secondary market; you redeem them directly with the Treasury, and you'll forfeit three months of interest if you cash out within five years.
Tax treatment
Here's the catch with TIPS: you owe federal income tax each year on the inflation adjustment to your principal, even though you don't receive that money until maturity. This is called "phantom income," and it's the main reason financial planners suggest holding TIPS inside tax-advantaged accounts like an IRA or 401(k). I bonds avoid this problem because you don't owe taxes until you cash them in.
Current rates
As of June 2026, I bonds offer a fixed rate of 0.9% plus an inflation adjustment. The 5-year TIPS real yield sits around 1.87%. For investors who've already maxed out their $10,000 I bond limit, TIPS are the natural next step.
The Breakeven Question: When Do TIPS Win?
The "breakeven inflation rate" tells you exactly when TIPS beat regular Treasury bonds. It's simply the difference between a regular Treasury yield and the TIPS real yield for the same maturity.
Right now, the 10-year regular Treasury yields about 4.48%, and the 10-year TIPS yields about 2.13%. The difference — 2.35% — is the breakeven. If average inflation over the next decade exceeds 2.35%, TIPS will have outperformed regular Treasuries. If inflation stays below 2.35%, you'd have been better off with the regular bond.
Given that inflation has averaged 4.5% over the past five years and the latest annual reading came in at 4.2%, the math tilts in favor of TIPS for anyone who thinks elevated inflation is here to stay for a while.
How to Buy TIPS
You've got three main options:
TreasuryDirect
You can buy TIPS directly from the U.S. government at TreasuryDirect.gov. They're issued in 5-year, 10-year, and 30-year terms, with a minimum purchase of $100. This is the most straightforward route, but you'll need to hold to maturity or navigate a somewhat clunky process to sell early.
TIPS ETFs
For most people, a TIPS ETF is the easiest path. Two standouts:
VTIP (Vanguard Short-Term Inflation-Protected Securities ETF) focuses on TIPS maturing in under five years, which means less sensitivity to interest rate swings. Its expense ratio is just 0.04% — practically free. This is a solid choice if you want inflation protection without the roller coaster of longer-duration bonds.
SCHP (Schwab U.S. TIPS ETF) holds TIPS across all maturities, giving you broader exposure to the full yield curve at a 0.03% expense ratio. If you have a longer time horizon and want maximum inflation protection, SCHP is worth a look.
TIPS mutual funds
Most major brokerages offer TIPS mutual funds as well. They work similarly to ETFs but may have slightly higher expense ratios and minimum investment requirements.
Who Should Consider TIPS?
TIPS aren't for everyone. Here's where they shine — and where they don't:
TIPS make sense if you...
- Are retired or approaching retirement. When you're living off your portfolio, inflation is your biggest silent threat. TIPS provide a predictable real return that keeps your purchasing power intact.
- Have maxed out I bonds. If you've hit the $10,000 annual I bond limit and want more inflation protection, TIPS are the logical next step.
- Believe inflation will stay elevated. With CPI at 4.2% and energy prices still climbing, TIPS offer a hedge that most other fixed-income investments don't.
- Want to diversify your bond allocation. Adding TIPS alongside regular bonds reduces your portfolio's overall sensitivity to unexpected inflation spikes.
TIPS might not be for you if...
- You're in a high tax bracket and investing in a taxable account. The phantom income tax issue makes TIPS less efficient outside of retirement accounts.
- You think inflation will drop sharply. If CPI falls well below the breakeven rate, regular Treasury bonds would have been the better choice.
- You need maximum liquidity. While TIPS ETFs are liquid, individual TIPS bought through TreasuryDirect are harder to sell quickly.
The Bottom Line
In a world where inflation keeps chipping away at your purchasing power, TIPS give you something rare: a government-backed guarantee that your investment will keep up with rising prices. With real yields around 2% and inflation running above 4%, the setup is about as favorable as it's been in years.
If you're already investing in index funds and have an emergency fund in a
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Start small. Even shifting 5-10% of your bond allocation into a low-cost TIPS ETF like VTIP or SCHP is a meaningful step. Your future self, the one paying $8 for a gallon of milk, will thank you.
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