TIPS Calculator (Treasury Inflation-Protected Securities)

How the Index Ratio Works

Treasury’s rules (31 CFR Part 356, Appendix B) use a reference CPI that lags the calendar by three months:

1. The reference CPI for the first day of a month is the non-seasonally adjusted CPI-U for the third month before. October 1, 2026 uses the July 2026 CPI-U, 333.918; November 1 uses August, 334.980.
2. For any other day, interpolate: Ref CPI = Ref CPI(1st of month) + (day − 1) ÷ (days in month) × (next month’s Ref CPI − this month’s). October 22: 333.918 + 21 ÷ 31 × 1.062 = 334.63742, after truncating to six decimals and rounding to five.
3. Index ratio = Ref CPI today ÷ Ref CPI on the bond’s dated date, also truncated and rounded to five decimals. The April 15, 2026 dated date used January (325.252) and February (326.785) CPI-U: 325.96740. So 334.63742 ÷ 325.96740 = 1.02660.

The calculator reproduces Treasury’s own Appendix B examples: a reference CPI of 154.63333 for April 15, 1996, an index ratio of 1.00011 for the next day, and on a 3 7/8% note whose reference CPI rose from 164 to 166.2, an adjusted principal of $101,341 on $100,000 and a coupon of $1,963.48. It also matches the auction data for the April 2026 5-year TIPS: TreasuryDirect lists a reference CPI of 325.96740 on the dated date and 326.73390 on the April 30 issue date, the same values the interpolation gives.

Interest on the Adjusted Principal

The coupon rate never changes, but it applies to a moving principal: interest = adjusted principal × rate ÷ 2, paid every six months. On October 15, 2026 (reference CPI 334.39761, index ratio 1.02586) the $10,000 bond’s principal was $10,258.60 and the coupon $64.12; as inflation lifts the principal, each payment grows with it. TIPS are sold in 5-, 10- and 30-year terms, in $100 increments, at auction or through a broker.

What Inflation Does to the Payout

Projections assume a steady inflation rate from today; actual CPI will differ.

The deflation floor

If prices fall, the adjusted principal falls and so do the coupons, but at maturity Treasury pays the greater of the adjusted principal and the original par. The floor protects only the original amount at maturity; a bond that has already gained from inflation can lose part of that gain, and coupons along the way are paid on the lower principal.

TIPS vs Nominal Treasuries and I Bonds (October 2026)

On October 21, 2026, the 5-year Treasury yielded 4.95% and the 5-year TIPS real yield was 2.55% (Treasury daily par and real yield curves). The difference, 2.40 percentage points, is the break-even inflation rate: if CPI-U inflation averages more than that over five years, the TIPS comes out ahead before taxes. CPI-U rose 3.7% over the year to September 2026 (BLS). Series I savings bonds offer a similar inflation link with a 0.90% fixed rate for bonds issued May through October 2026 (4.26% composite), but are limited to $10,000 a year per person and can only be cashed in with Treasury, after at least a year.

Taxes: Phantom Income on the Principal

Coupons are taxed as interest each year. The increase in the adjusted principal is also taxable each year as original issue discount, reported on Form 1099-OID, even though you receive it only at maturity or sale (IRS Pub. 550, “Inflation-Indexed Debt Instruments”). With 3% inflation the $10,266 principal grows about $308 in a year: at 22%, about $68 of tax with no cash received. Both are exempt from state and local income tax. That is why TIPS are often held in an IRA or 401(k), where the phantom income is sheltered.

Mistakes With TIPS

• Using the coupon as the yield. The coupon is set near the auction’s real yield, but the price you pay can be above or below par; compare real yields, not coupons.
• Expecting this month’s inflation. The reference CPI lags by three months, so today’s principal reflects inflation from the summer.
• Forgetting accrued inflation when buying on the secondary market. You pay the price times the index ratio, plus accrued interest.
• Selling before maturity. The deflation floor only applies at maturity; market prices move with real yields.
• Holding TIPS in a taxable account without cash for the tax. Phantom income is taxed every year.

What the Calculator Does Not Cover

It uses the reference CPIs you enter (TreasuryDirect publishes the daily table) and a constant inflation assumption for projections. It does not price TIPS in the secondary market, compute a real or nominal yield to maturity from a price, handle TIPS strips, or calculate state-level effects. The phantom-income figure is the simple one-year estimate; your Form 1099-OID is the number to report. For a ladder or a large purchase, a fee-only adviser can match maturities to spending needs.

Frequently Asked Questions

How to Use This Calculator

1. Enter your par amount and coupon — from your account or the auction results (the coupon is fixed for life).
2. Enter both reference CPIs — the reference CPI on the bond’s dated date (in the auction results) and today’s, from TreasuryDirect’s reference CPI table.
3. Add years left, expected inflation and your tax rate — for the projection to maturity and the phantom-income estimate.
4. Read the results — the index ratio, adjusted principal, next coupon, projected principal and interest to maturity, the deflation floor, and the tax on phantom income.