Introduction to Municipal Bonds

Municipal bonds are a type of bond that is very popular among investors looking for tax-free income. In most cases, the interest they earn is not subject to federal taxes.

There are many types of municipal bonds that are issued by state and local governments. Generally, municipal bonds are used to raise money for community projects. Because of this, the federal government exempts holders from paying income tax on interest generated, to encourage investors to buy them. Municipal bonds generally pay lower interest than comparable corporate bonds, but with the tax break, investors in high income tax brackets could earn as much or more after tax on a municipal bond than a comparable taxable corporate bond.

If you are considering investing for current income, municipal bonds might be an attractive offering. Compare the different types of bonds offered by municipalities to see whether they are suitable for your investment objectives.