What are municipal bonds?
A. Bonds issued by states, cities, or certain agencies of local governments (such as school districts) are called municipal bonds. An important feature of these bonds is that the interest a bondholder receives is not subject to federal income tax. In addition, the interest is also exempt from state and local tax if the bondholder lives in the jurisdiction of the issuing authority. Because of the tax advantages, however, the interest rate paid on municipal bonds is generally lower than that paid on corporate bonds. Rating agencies evaluate bonds issued by state and local governments and their agencies, taking into consideration such factors as the tax base, population statistics, total debt outstanding, and the area’s general economic climate. There are different types of municipal bonds. Some are general obligation bonds that are secured by the full faith and credit of a state or local government, and are backed by its taxing power. Others are revenue bonds that are issued to finance s
A municipality, such as the City of Glendale, will sell (issue) bonds primarily to finance capital projects. This is similar to a family taking out a mortgage in order to finance a house. Just like a family, the city has basic necessities (infrastructure) like roads and office buildings but usually does not have cash available for such major purchases. Municipal bonds are like loans that help make large, important purchases affordable. Bonds also effectively spread out the costs of major projects across their useful life, so all those citizens who utilize them can help pay for them.
Bonds issued by states, cities, or certain agencies of local governments (such as school districts) are called municipal bonds. An important feature of these bonds is that the interest a bondholder receives is not subject to federal income tax. In addition, the interest is also exempt from state and local tax if the bondholder lives in the jurisdiction of the issuing authority. Because of the tax advantages, however, the interest rate paid on municipal bonds is generally lower than that paid on corporate bonds. Rating agencies evaluate bonds issued by state and local governments and their agencies, taking into consideration such factors as the tax base, population statistics, total debt outstanding, and the area’s general economic climate. There are different types of municipal bonds. Some are general obligation bonds that are secured by the full faith and credit of a state or local government, and are backed by its taxing power. Others are revenue bonds that are issued to finance spec
Municipal bonds are bonds that are issued by state and local governments. By issuing municipal bonds, local governments borrow money to build bridges, roads, hospitals, schools, sewer systems, stadiums, airports, power plants, prisons, and provide for other needs of local governments. Municipal bonds are generally issued to raise money for major capital projects. Almost all states and local governments such as counties, cities, towns, issue municipal bonds from time to time. There is also a form of government called Special Districts. These are government entities such as school districts that provide one specific type of service to one municipality or to multiple municipalities. Special districts include water districts, fire districts, power districts, sewer districts, airports, etc. Collectively, there are over 50,000 different municipal bond issuers comprising of various states, towns, cities, counties, and special districts that currently have over $2.6 trillion in bonds outstandi
Municipal bonds are securities issued by state and local governments, their agencies and authorities, frequently to finance public improvement projects. Interest from municipal bonds usually incurs no federal taxes, and often, no state or local taxes. WHEN SHOULD YOU CONSIDER MUNICIPAL BONDS? If you are looking for a conservative investment to balance the risk in your portfolio, consider municipal bonds. WHAT ARE THE BENEFITS OF MUNICIPAL BONDS?Obtain tax-exempt income The distinctive feature of tax-exempt municipal bonds is that the interest is exempt from federal income taxes.1 And the interest is also often exempt from state and local income taxes. These tax-exempt earnings can be especially attractive to investors in higher tax brackets — particularly residents of a high-tax state who buy municipal bonds that are tax-exempt in that state. Benefit from a low minimum investment • Bonds are issued at a face value of $1,000 and trade in multiples of $5,000. • Coupon interest is paid, i
