Can i buy municipal bonds

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To the best of our knowledge, all content is accurate as of the date posted, though offers contained herein may no longer be available. Municipal bonds are, as advertised, free of federal taxes.

That doesn't mean that the overall return on a muni bond will be the best available option for you. You still have to do your due diligence to choose the best municipal or corporate bonds for you or the best mix of the two. Another alternative is to invest in a bond ETF or mutual fund and let someone else make the choices. Municipal Bonds. Internal Revenue Service. Accessed Feb. Securities and Exchange Commission. US Inflation Calculator. Lord Abbott. FMS Bonds Inc. The Detroit News. Fixed Income Essentials.

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The interest you receive from muni bonds is free from federal taxes but there may be state or local taxes or both. Beware: If you receive Social Security, your bond interest will be counted as income in calculating the taxable amount of your Social Security income. That could increase the amount you owe. The interest rate paid on muni bonds is generally lower than rates for corporate bonds. You need to determine which deal has the better real return. On the plus side, highly-rated municipal bonds are generally very safe investments compared to almost any other investment.

The default rate is tiny. As with any bond, there is interest rate risk. If your money is tied up for 10 or 20 years and interest rates rise, you'll be stuck with a poor performer. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate.

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Related Articles. Investing The Basics of Municipal Bonds. Fixed Income Essentials Using U. Savings Bonds As a Long-term Investment. Partner Links. A taxable municipal bond is a fixed-income security issued by a local government to finance projects that the federal government will not subsidize. Mutual Exclusion Doctrine The mutual exclusion doctrine is an agreement between federal, state, and local taxing authorities related to interest on government bonds.

A variable-rate demand bond is a municipal bond with floating coupon payments that are adjusted at specific intervals. Bond calls are less likely when interest rates are stable or moving higher. Credit risk. Credit ratings are available for many bonds. Credit ratings seek to estimate the relative credit risk of a bond as compared with other bonds, although a high rating does not reflect a prediction that the bond has no chance of defaulting.

Interest rate risk. If bonds are held to maturity, the investor will receive the face value amount back, plus interest that may be set at a fixed or floating rate. If they move higher, investors who hold a low fixed-rate municipal bond and try to sell it before it matures could lose money because of the lower market value of the bond.

Inflation risk. Inflation is a general upward movement in prices. Inflation reduces purchasing power, which is a risk for investors receiving a fixed rate of interest. It also can lead to higher interest rates and, in turn, lower market value for existing bonds. Liquidity risk. Many investors buy municipal bonds to hold them rather than to trade them, so the market for a particular bond may not be especially liquid and quoted prices for the same bond may differ.

Tax implications. Consider consulting a tax professional to discuss the bond's tax implications, including the possibility that your bond may be subject to the federal alternative minimum tax or eligible for state income tax benefits. Broker compensation. Most brokers are compensated through a markup over the cost of the bond to the firm.