🤝 BFF Take
VTIP Is Better for Most Investors — Cheaper, Less Rate Sensitive
TIP (iShares TIPS Bond ETF) and VTIP (Vanguard Short-Term Inflation-Protected Securities ETF) both invest in US Treasury Inflation-Protected Securities — bonds whose principal adjusts with the CPI. But they target very different maturity ranges. TIP holds TIPS across all maturities (effective duration ~7 years) at 0.19%, giving it higher interest rate sensitivity. VTIP specifically holds short-term TIPS with maturities under 5 years (effective duration ~2.5 years) at a much lower 0.04%. For most investors using TIPS as inflation protection, VTIP's shorter duration means less sensitivity to rate changes — making it a more predictable inflation hedge. TIP is appropriate if you want the full TIPS market at a higher fee and accept more rate risk.
📋 Quick Takeaways
📊TIP has ~7 year effective duration; VTIP has ~2.5 years — VTIP is far less sensitive to interest rate changes
💰VTIP costs 0.04% vs TIP's 0.19% — nearly 5x cheaper for shorter-duration inflation protection
🛡️Both protect against CPI inflation via principal adjustment — VTIP does it with less interest rate risk attached
📊 Data-Based Take: VTIP has the lower fee
Whether the lower-cost fund suits your situation depends on your existing holdings, account type, tax situation, and how you use each fund. This is a cost comparison, not a personalized recommendation.
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Reviewed by a CFA® Charterholder · Data updated Jun 2026 · Educational only, not financial advice
TIP
iShares TIPS Bond ETF
VTIP
Vanguard Short-Term Inflation-Protected Securities ETF
📋 TIP vs VTIP — Key Facts Side by Side
| Metric |
TIP |
VTIP |
| Fund Name |
iShares TIPS Bond ETF |
Vanguard Short-Term Inflation-Protected Securities ETF |
| Issuer |
iShares |
Vanguard |
| Tracks Index |
Bloomberg US TIPS |
Bloomberg US Treasury Inflation-Protected Securities 0-5 Year |
| Expense Ratio |
0.19% |
0.04% ✓ |
| Cost per $10K/yr |
$19.00 |
$4.00 |
| AUM |
$20B |
$18B |
| Holdings |
50 |
25 |
| Inception |
2003 |
2012 |
| 1-Year Return |
+3.80% |
+5.20% |
| 3-Year Return |
+0.20% |
+2.80% |
| 5-Year Return |
+3.40% |
+3.90% |
| Avg Bid-Ask Spread |
0.01% |
0.01% |
Data from ETF BFF database. Returns are annualised. Not investment advice.
📊 TIP vs VTIP — Annualised Returns
Annualised returns (trailing, price-based). Past performance does not guarantee future results.
🎯 Should You Buy TIP or VTIP?
Choose if...
TIP
- You want broader diversification (50 holdings vs 25)
- You want income and stability with lower portfolio volatility
Choose if...
VTIP
- You want the lowest fees — saves ~$15/yr per $10K vs TIP
- You want income and stability with lower portfolio volatility
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❓ TIP vs VTIP — Frequently Asked Questions
How do TIPS ETFs protect against inflation?
Treasury Inflation-Protected Securities have their principal value adjusted quarterly based on changes in the Consumer Price Index (CPI). If inflation runs at 4%, the face value of your TIPS increases by 4%. The interest paid (a fixed coupon rate) is then calculated on the inflation-adjusted principal — so both your principal and your interest income grow with inflation. At maturity, you receive the greater of the original or inflation-adjusted principal.
Why did TIPS ETFs perform poorly in 2022?
Despite high inflation (which should benefit TIPS), TIP fell significantly in 2022. This seems counterintuitive but makes sense: the inflation protection aspect worked (principals increased), but the Federal Reserve raised interest rates aggressively to fight inflation. Rising rates reduce bond prices, and for longer-duration TIP, the rate increase outweighed the inflation adjustment benefit. VTIP, with much shorter duration, held up considerably better in 2022.
Should I own TIP or VTIP in my portfolio?
VTIP is generally preferred for most investors seeking inflation protection as a portfolio allocation. Its shorter duration means it behaves more like cash-plus-inflation-protection rather than a volatile interest rate instrument. TIP is appropriate for investors specifically wanting exposure to the full TIPS term structure and willing to accept the duration risk. For a straightforward "protect against inflation" allocation, VTIP is simpler and cheaper.
How much of a portfolio should be in TIPS?
Common practice varies widely — some investors allocate 0-10% of their bond portfolio to TIPS, while others (particularly those near or in retirement concerned about inflation eroding fixed income) allocate 20-30% of bonds to TIPS. TIPS work best as a partial allocation within a diversified bond portfolio rather than as the only bond holding.
Are TIPS better than I-bonds for inflation protection?
I-bonds (Treasury Series I Savings Bonds) often offer more favorable inflation adjustments and are completely immune to interest rate risk since they're not tradeable. However, I-bonds have a $10,000 annual purchase limit per person, can't be redeemed in the first year, and can't be held in IRAs. TIPS ETFs like TIP and VTIP can be purchased in unlimited amounts, held in any account type, and sold anytime. Both serve inflation protection — I-bonds are better for small amounts, TIPS ETFs for larger allocations.
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ℹ️ Data shown is for educational purposes and may not reflect the most current figures. Returns are trailing price-based and exclude dividend reinvestment. Past performance does not guarantee future results. ETF BFF is not a licensed financial advisor — this is not personalized financial advice.