Published on June 20, 2014
Municipal bonds are debt obligations issued by states, cities, counties and other governmental entities to raise money to build schools, highways, hospitals and sewer systems, as well as many other projects for the public good. When you purchase a municipal bond, you are lending money to an issuer who promises to pay you a specified amount of interest (usually paid semi-annually) and return the principal on a specific maturity date. Not all municipal bonds offer tax exemptions from both federal and state taxes. Taxable municipal bonds are taxable at the federal level, but may offer state, and often local, tax exemption on interest paid to investors who reside in the state of issuance.