More on Municipal Bonds

Odds are municipal bonds play a significant role in your own daily life― especially if you drive on roads, cross bridges, walk on sidewalks, charge your electronics via electricity from a public power provider, consume water from a local utility, ride on a mass transit system, visit a hospital, attend a school, rely on local public safety or fire departments, live in affordable housing, or use just about any state or local public service.

Unlike many other investments, municipal bonds mostly serve to meet public need and are afforded a tax-exemption to help support that purpose. Investors (“bondholders”) do not pay federal and oftentimes state income taxes on interested earned on qualified municipal bonds. As such, bondholders will accept lower interest rates on these qualified bonds since they are untaxed. This arrangement affords significant borrowing cost savings for communities looking to finance infrastructure and service provision. Ultimately, these lower borrowing costs translate to savings for the local taxpayer or ratepayer and spur a level of infrastructure investment that would simply not be possible absent the exemption.

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