TIPS are bonds issued by the federal government through a bank, broker, or the Treasury, for five, ten and twenty year maturities. Their value grows to the extent of inflation. TIPS also are bought in mutual funds and ETFs.
Investors seek inflation protection more than interest, which is relatively low right now. With little current, reported inflation, returns are insignificant.
Potential inflation makes for their investor attraction.
State and local taxes do not apply on U.S. Treasury obligations. However, additional interest paid because of inflation will be subject to federal taxes.
But why buy them? I have never considered TIPS a valid bond inflation advantage, despite the mass of what I feel is publish-by-rote-publicity that TIPS receive in the financial media.
Moreover, you can get inflation protection elsewhere. Even with other bond funds, yielding much higher returns. The public has to learn how to use principles of “duration” which the media is remiss in ever fully explaining, (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)
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