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Intermediate · Lesson 5 of 5

Inflation-linked bonds, term deposits and cash

6 minute read · By Krishna Avadhani, Vestora Academy · Updated 18 October 2026

Inflation-linked bonds (Treasury Indexed Bonds in Australia, TIPS in the US) adjust their principal with inflation, so the real yield is locked in. They protect against inflation surprises but still fall when real yields rise.

Term deposits are bank deposits for a fixed term at a fixed rate. In Australia, deposits up to $250,000 per account holder per authorised deposit-taking institution are covered by the Financial Claims Scheme. Breaking a term deposit early usually costs some interest.

Cash and short-term deposits are the anchor for emergency funds and near-term spending. Their real return depends on interest rates staying above inflation.

Key takeaways

  • Inflation-linked bonds lock in a real yield.
  • The Financial Claims Scheme covers up to $250,000 per person per bank.
  • Cash is for safety and liquidity, not long-term growth.

Check your understanding

1. The Australian Financial Claims Scheme covers deposits up to...

  • $50,000
  • $100,000
  • $250,000 per account holder per ADI
  • Unlimited
Show the answer

$250,000 per account holder per ADI. The cap is $250,000 per account holder per ADI.

2. An inflation-linked bond protects mainly against...

  • Company default
  • Unexpected inflation
  • Share crashes
  • Currency moves
Show the answer

Unexpected inflation. Principal rises with inflation.

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General education only, not financial advice. Examples are illustrations. Rules, tax settings and products change; check official sources.