The short answer
TIPS principal adjusts for inflation and deflation, but selling before maturity exposes you to the prevailing market price.[1][3] At maturity, Treasury pays the greater of adjusted principal and original principal; that floor does not promise reimbursement of whatever a secondary-market buyer paid.[1][3]
Three amounts with three different jobs
Original principal is the face amount on which the security’s inflation adjustment is based. Adjusted principal is that original amount multiplied by the applicable index ratio.[2] Market sale proceeds are a different amount: Treasury explicitly warns that a pre-maturity sale is subject to market valuation and can produce a capital gain or loss.[3]
Label these amounts separately before comparing them. A statement showing higher adjusted principal is not, by itself, evidence that you could sell for that amount. That conclusion follows from the distinction between Treasury’s indexing calculation and its separate warning about secondary-market valuation.[2][3] The three figures answer different questions: what was issued, what is indexed, and what could be sold.
How the inflation adjustment works
Treasury describes indexing by the Consumer Price Index for Urban Consumers, or CPI-U.[3] Its brochure explains that reference CPI uses a three-month lag for the first day of a month and linear interpolation for other days.[3] Therefore, do not substitute today’s inflation headline for the applicable daily index ratio; Treasury directs investors to the ratio for their specific security and date.[2]
Hypothetical calculation: original principal of $1,000 and an index ratio of 1.08 give adjusted principal of $1,080. If a later applicable ratio is 1.05, adjusted principal becomes $1,050. These are assumed ratios, not forecasts. The arithmetic illustrates Treasury’s rule that principal can fall with deflation as well as rise with inflation.[1][2]
Fixed coupon rate, changing dollar payment
TIPS pay interest every six months at a fixed coupon rate, but the dollar payment varies because the rate applies to adjusted principal.[1] Treasury’s calculation is adjusted principal multiplied by half the annual coupon rate.[2] A fixed rate therefore does not mean a fixed check, and the coupon rate alone is not a calculation of your investment return.
Assume a 2% annual coupon and $1,080 adjusted principal on a regular payment date. The semiannual payment is $1,080 × 0.02 ÷ 2 = $10.80. At $1,050 adjusted principal it is $10.50. These calculations exclude taxes and assume the stated principal applies on each payment date. They illustrate the official formula, not an actual security’s payment.[2]
Selling early is a market transaction
Treasury’s brochure says that TIPS can be bought and sold in the secondary market before maturity, but their sale value is subject to market valuation.[3] Inflation indexing is consequently not a standing Treasury offer to buy your security at adjusted principal. The maturity rule and an early sale are different transactions.[1][3]
Suppose adjusted principal is $1,080, your purchase outlay was $1,060, and hypothetical sale proceeds are $1,020. Ignoring all coupons, taxes, fees and interest-settlement effects, the sale-only loss is $40. The example assumes those proceeds rather than deriving a market quote from the index ratio. It shows why the adjusted-principal number alone cannot calculate your sale result.
What the maturity floor actually protects
At maturity, Treasury pays adjusted principal if it exceeds original principal; otherwise it pays original principal.[1] In compact form, principal redemption equals the greater of those two amounts. The rule is a floor at maturity, not a promise that adjusted principal never falls or that a sale price cannot be lower.[1][3]
For hypothetical original principal of $1,000, adjusted principal of $970 at maturity produces $1,000 principal repayment. Adjusted principal of $1,120 produces $1,120. These examples concern the principal component only; they do not add coupon payments or compute an annualized return. Neither example establishes a floor equal to the largest adjusted-principal balance previously displayed.
A secondary-market purchase does not reset the floor
The official floor refers to original face value, while the brochure separately notes that broker purchases may have prices different from Treasury purchases.[3] The resulting distinction matters: your personal acquisition cost is not substituted for original principal in the maturity rule.[1][3] Paying more does not create a larger Treasury principal guarantee.
Assume you pay $1,150 for a security with $1,000 original principal and later receive $1,080 principal at maturity. The principal repayment is $70 below your purchase outlay even though it exceeds the original $1,000 floor. This is not a statement that total investment return is negative: coupons and other cash flows must also be counted.
A practical reading checklist
Before interpreting an account value, identify the security, original face amount, relevant index-ratio date, adjusted principal, coupon rate, maturity date and actual purchase outlay. If you need money before maturity, request an executable sale quotation and its settlement breakdown rather than treating indexed principal as cash available today. This checklist applies the official distinction between indexing and market valuation.[2][3]
Tax timing also deserves attention: Treasury says annual interest is subject to federal tax and principal changes can affect federal taxes.[1] Do not treat an indexed increase as both cash already received and tax-free growth. The two HTML sources show no publication date; the brochure states “Revised March 2019.” Those source dates are distinct from this article’s September 20, 2026 check.
Sources & scope
Links support definitions and methodology. Worked examples are hypothetical, not quotes; the review date is not the observation date of a market value.
- TreasuryDirect — Treasury Inflation-Protected Securities (TIPS) ↗
Source date: Not stated in the retrieved body · Verified: 2026-09-20
- TreasuryDirect — Understanding Pricing and Interest Rates ↗
Source date: Not stated in the retrieved body · Verified: 2026-09-20
- TreasuryDirect — TIPS brochure (revised March 2019; day unspecified) ↗
Source date: 2019-03 · Verified: 2026-09-20