There are many types of bonds available on the market.
Tax free muni bonds are one of the safest ways to invest your money. A
municipal bond fund is an investment product that is offered by local or state governments as a way to raise money for infrastructure products. There are two main types of municipal bonds on the market: General Obligation or Revenue Bonds. Both can be purchased in short term or long term increments.
General Obligation municipal bonds are bonds used to generate money for special projects. These bonds are generally approved by the voters before they can be issued. These bonds are backed by the government entities ability to collect enough taxes to cover the bonds.
Revenue bonds are bonds that are used for infrastructure projects. These include schools, hospitals, bridges and things of this nature. Generally a particular agency within the government will issue this type of bond. Funding to repay the bond money is from things such as tolls or other income generated by the government entity other than taxes.
Municipal bonds, since they are backed by government offices are generally a safer investment. The bond holder will collect interest payments on their money throughout the life of the bond. At the end of the bond period they will be given back their investment amount. It is a safe and simple way to save for the future.
Municipal bonds in most states are tax free. Interest payments received from the bonds each year will not qualify for federal taxation and most states will not impose a tax on these bonds either. The drawback to this tax exempt status is that the return rate is lower than if you invest into corporate bonds. They pay a lower rate because, as a government body, they know you will not pay taxes on that income. This is why they are considered a safe and tax wise investment product.
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