You can invest in TIPS three ways: buy them directly from the U.S. Treasury at TreasuryDirect.gov, buy previously issued bonds through a brokerage account, or hold them through a TIPS-focused ETF or mutual fund. The direct route has a $100 minimum and requires a Social Security Number, a U.S. address, and a linked bank account.1TreasuryDirect. TIPS — Treasury Inflation-Protected Securities Which path fits you depends on how much control you want, whether you plan to hold to maturity, and how you’ll handle the tax reporting.
What You’re Actually Buying
TIPS are federal bonds whose principal adjusts with the Consumer Price Index for All Urban Consumers. When inflation rises, the principal rises. You earn a fixed coupon rate, but that rate applies to the adjusted principal, so semiannual interest payments grow along with inflation.1TreasuryDirect. TIPS — Treasury Inflation-Protected Securities A $1,000 TIPS with a 2% coupon pays $10 every six months at par, but if inflation pushes the principal to $1,050, the next payment is calculated on that higher figure.
The adjustment runs both directions. If the CPI falls, principal and interest shrink. At maturity, though, you receive either the inflation-adjusted principal or the original face value, whichever is greater.1TreasuryDirect. TIPS — Treasury Inflation-Protected Securities You can’t get back less than you put in on a held-to-maturity individual bond. That floor doesn’t apply to fund shares, which is one of the important differences below.
The Treasury issues TIPS in three maturities: 5-year, 10-year, and 30-year, on a rotating schedule with several auctions per year.2Treasury.gov. Tentative Auction Schedule of U.S. Treasury Securities The 10-year comes up most often.
Buying Direct Through TreasuryDirect
To buy from the government, open an individual account at TreasuryDirect.gov. You need a Taxpayer Identification Number (a Social Security Number for individuals), a U.S. address of record, and a checking or savings account with routing and account numbers. There’s no minimum balance to open the account.3TreasuryDirect. Open an Account The system emails you a unique account number to use at every login, so save it somewhere you can find again.
TIPS sell through scheduled auctions, not on demand. Once you’re logged in, go to the BuyDirect tab, choose TIPS, pick a maturity, and enter your amount.4TreasuryDirect. Buying a Treasury Marketable Security The minimum is $100, with $100 increments up to $10 million per auction through non-competitive bidding.1TreasuryDirect. TIPS — Treasury Inflation-Protected Securities
Nearly all individual investors bid non-competitively, which means you accept whatever yield the auction sets and your entire order gets filled.4TreasuryDirect. Buying a Treasury Marketable Security On issue date the Treasury debits your linked bank account, so the money needs to be there. The bond then appears in your holdings and starts accruing interest.
Direct purchase has no transaction fees and no ongoing expenses. What you give up is flexibility: you’re locked into the maturities the Treasury is currently auctioning, and selling before maturity is not straightforward, as covered below.
Buying Through a Brokerage
Previously issued TIPS trade between investors on the secondary market, accessible through most full-service and discount brokerages. This is the route to take if you want a specific remaining duration that doesn’t line up with the current auction calendar. Looking for a bond that matures in three years when the next auction is a fresh 10-year? The secondary market is where you’ll find it.
Prices move with interest rates, inflation expectations, and supply and demand. A bond may trade above its inflation-adjusted principal (a premium) or below it (a discount). You’ll also pay an implicit cost through the bid-ask spread, which is usually modest at retail sizes but worth checking. Your brokerage’s bond desk or fixed-income platform lists available TIPS by maturity, coupon, and price.
The other reason to buy through a brokerage from the start: if you think there’s any chance you’ll want to sell before maturity, doing so from a brokerage is far easier than from TreasuryDirect.
Buying Through TIPS ETFs or Mutual Funds
If tracking auction dates and managing individual bonds sounds like more work than you want, TIPS-focused ETFs and mutual funds provide the same inflation protection with less administration. You buy and sell fund shares through any brokerage during normal market hours. The fund manager handles buying at auction, reinvesting interest, and rolling maturing bonds into new ones.
The cost is an annual expense ratio, typically between 0.03% and 0.20% of your invested amount. On a $50,000 position, even 0.10% is $50 a year that quietly reduces your real return. In exchange, you get instant liquidity: you can sell any trading day at the current market price, with no transfer paperwork.
Funds also behave differently from individual bonds when rates move. When interest rates drop, the market value of existing TIPS rises and fund share prices rise with them. When rates rise, share prices fall, and unlike an individual bond held to maturity, a fund gives you no guaranteed return of original principal. If you have a specific time horizon and want that certainty, individual bonds fit better. If you want a diversified, liquid holding you can manage in one screen with the rest of your portfolio, a fund does.
Selling Before Maturity
Here’s a catch that surprises people who bought through TreasuryDirect: the platform doesn’t operate a secondary market. To sell before maturity, you first transfer the bond to a commercial brokerage using Form PD F 5511, then sell it there. The form must be signed in person before an authorized certifying officer at a bank, trust company, or credit union — a notary’s signature isn’t accepted — and mailed to the Bureau of the Fiscal Service. The process commonly takes several weeks.
If early liquidity matters to you, buy through a brokerage or use a fund. If you’re confident you’ll hold to maturity, direct purchase is fine.
Taxes and Where to Hold TIPS
TIPS interest and inflation adjustments are exempt from state and local income tax under federal law.5Office of the Law Revision Counsel. United States Code Title 31 – 3124 Exemption From Taxation Federal tax applies to both, and this is where new TIPS investors often get caught off guard.
Every year the CPI pushes your principal higher, the IRS treats that increase as taxable income, even though you don’t actually receive the money until the bond matures or you sell. This is phantom income, reported on Form 1099-OID under the original issue discount rules.6Internal Revenue Service. Publication 1212 – Guide to Original Issue Discount (OID) Instruments On a $10,000 TIPS with 4% inflation in a year, roughly $400 of income gets reported to the IRS before any principal comes back to you. You owe tax on it in that year regardless.
If you bought on the secondary market rather than at original issue, you may need to recalculate the figure on your 1099-OID to reflect your actual acquisition cost.6Internal Revenue Service. Publication 1212 – Guide to Original Issue Discount (OID) Instruments In a year when the CPI falls, the deflation adjustment offsets your regular TIPS interest income rather than creating a standalone deduction.
The simplest way around phantom income is to hold individual TIPS inside a traditional IRA, Roth IRA, or 401(k). In a tax-deferred or tax-free account, the annual inflation adjustments don’t trigger a yearly tax bill. For small positions or low tax brackets, phantom income may not be worth restructuring your accounts over. For larger holdings across a multi-year term, the tax drag in a regular brokerage account adds up.