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Tip of the Day Index Funds are Your Friend

Index Funds are Your Friend - Every stock market or stock exchange offers indexed funds and these index funds are more beneficial to you as a new investor as they...

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Inflation Treasury Bond

TIPS (Treasury Inflation Protection Securities) are bonds that are issued and backed by the federal government of the United States. The principal amount of the TIPS bond changes as the inflation rate changes, but when the bond matures you will get the full value of the bond. Inflation Treasury Bonds are protected against inflation and deflation of the economy. TIPS bonds and I Bonds are becoming a very popular investment, because even if the economy deflates, you will either be paid the adjusted principal or the original principal. If the adjusted principal is greater than the original principal you will be paid that.

The Inflation Treasury Bond is backed by the federal government, and therefore exempt from state and local taxes. You will, however, have to pay federal tax on any distributions you take. You will be paying taxes on the principal adjustments as the economy inflates and deflates. The taxes you pay could be more than the interest that is being paid on the bond. If you are an investor in Inflation Treasury Bonds, you might consider putting it into a Roth IRA account. This makes sense, especially if you live in a state that has high tax rates.

An Inflation Treasury Bond is a good investment within a Roth IRA. Within a Roth IRA TIPS bonds tend to stay ahead of inflation by 4 percent. Roth IRAs have a tax advantage, which is makes investing in TIPS within a Roth IRA more desirable. If you hold your Inflation Treasury Bonds outside of a Roth IRA, you could be hit with taxes that surpass the interest earned.

An Inflation Treasury Bond is a marketable bond. You can trade TIPS bonds, just like you can Treasury Bills and Treasury Notes; these types of securities are liquid and easy to trade on the secondary securities market. You can purchase Inflation Treasury Bonds at your local bank, through brokers, and through Treasury Direct online. If you buy an Inflation Treasury Bond from Treasury Direct, you are buying directly from the United States Treasury, and not through a "middle man" like a bank or broker. With Treasury Direct, you deal with them electronically through the Internet. The advantage of buy TIPS bonds through Treasury Direct is that you pay for the securities without having to pay an agent.

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The advantage of buy TIPS bonds through Treasury Direct is that you pay for the securities without having to pay an agent.

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