How to Buy Treasury Inflation Protected Securities

Treasury Inflation Protected Securities (TIPS) can be purchased through any broker, brokerage account or mutual fund. Additionally, Treasury bonds, including TIPS, can be purchased directly through the Treasury Direct program. Each option to purchase will have its benefits over other arrangements. On the whole, though, any method you use to purchase TIPS should be fairly easy because they are straightforward options.

General TIPS Purchasing Guidelines

TIPS are offered in increments of $100 as marketable Treasury securities. Because the securities are marketable, they are held in a different category than non-marketable securities, such as savings bonds. The limit for series I savings bonds is $5,000 as of 2010. Individuals with a Treasury Direct account can purchase up to $20,000 more through online accounts. This limit is not cumulative but calculated on an annual basis using the investor's Tax Payer Identification number or Social Security number. Individual investors can exceed this limit by purchasing other notes, bills and TIPS that are "marketable" securities. There is no limit to the number or sum of marketable securities an investor can purchase.

Purchasing TIPS through a Broker

If you would like to add TIPS to your brokerage account, you can simply contact your broker to ask for current yield and pricing models. You may also ask your broker to present you with options to invest in an exchange traded fund (ETF) that currently holds a high number of TIPS and other notes. For example, the Vanguard Inflation-Protected Securities fund is exclusively invested in Treasuries that have inflation protection. You can purchase shares in the ETF on the general market the same as you would purchase shares in any other company or venture. You can trade these shares in the future just as easily. However, make sure you research the ETF before buying into it as ETFs can vary widely.

Purchasing TIPS through Treasury Direct

If you would like to purchase directly through the Treasury, set up an account with Treasury Direct. You can do this easily online through the Treasury Direct website. You will need to supply only personal information, such as your Social Security number, and other forms of identification in order to validate your account.

Once you have a Treasury Direct account, there are two primary methods to purchase TIPS. First, you can place a noncompetitive bid. You place an order for a certain number of shares at a certain price. You are guaranteed to have this bid filled, but the yield you receive is not guaranteed. You will receive whatever yield is reached at auction.  

A second method is to place a competitive bid. In this model, you will state the yield you desire. If the TIPS hits that yield at auction, shares will be purchased in the amount you have specified. You are not guaranteed to receive the number of shares you desire or even to receive shares at all. Instead, you simply submit your bid and wait to see how the auction performs to learn whether you will purchase securities on a given day.

blog comments powered by Disqus
Scottrade