If you are concerned about inflation increasing in the future Treasury Inflation-Protected Securities (TIPS) may be the way to go. TIPS were created to provide protection against inflation and were not available in the 1980’s when inflation ran rampant. The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. When a TIPS matures, you are paid the adjusted principal or original principal, whichever is greater.
Like all Treasury Bills, TIPS pay interest twice a year, but the difference is payments rise with inflation and fall with deflation.
The relationship between TIPS and the Consumer Price Index affects both the sum you are paid when your TIPS matures and the amount of interest that a TIPS pays you every six months. At the maturity of a TIPS, you receive the adjusted principal or the original principal, whichever is greater. This provision protects you against deflation.
But if you hold TIPS to maturity, you’re assured that you’ll get back at least what you put in. Like all other Treasury issued bills, TIPS is backed by the United States government and is considered a “riskless” asset.