The principal of your TIPS goes up and down with inflation and deflation. While the interest rate is fixed, the amount of interest you get every six months may vary based on any change in the principal. Those changes are tied to the Consumer Price Index from the U.S. Department of Labor, Bureau of Labor Statistics.
Follow these instructions to know what your next interest payment will be. An example follows, below the table.
Calculating your inflation-adjusted interest payment
To calculate your inflation-adjusted interest, follow these steps:
- Use the CUSIP number to find your TIPS in the table.
- Click on the CUSIP number.
The TIPS/CPI query results page for that CUSIP number appears.
- In the table on the query results page, find the Index Ratio that corresponds to the interest payment date for your security.
- Multiply your original principal amount by the Index Ratio.
This is your inflation-adjusted principal.
- Next, multiply your inflation-adjusted principal by half the stated interest (coupon) rate on your security.
The resulting number is your semi-annual interest payment.
You have $1,000 invested in a 5-year TIPS with an interest rate of 0.125%.
You will get an interest payment next week and want to know how much it will be.
When you look up the Index Ratio for your TIPS, you see it is 1.01165.
Multiplying your $1,000 by 1.01165, you get your adjusted principal: $1,011.65.
For this six month payment, you get half of 0.125% (your annual interest rate), which is 0.0625%.
Turn the percent into a decimal by moving the decimal point 2 places to the left: 0.000625.
Now, multiply the adjusted principal by the half-year interest rate: In this example, multiplying $1,011.65 times 0.000625 gives you your expected interest payment: $0.63.
If you have questions, contact us: 202-504-3550.