Municipal bonds are basically IOU’s from local municipalities with interest rates. Normally this is paid via the taxpayers’ money that comes into the local areas.
The downside is that they are not guaranteed by the local government. The main benefit of this purchase is that they are tax-exempt.
Plus, if you’re buying into a certain project let’s say money is needed for a new toll road, you are pretty much guaranteed you will get that money back since it’s a toll road and will not lose the money.
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The company, government or municipality pays back in different time frames. This is called coupon rate or coupon yield.
Some can pay monthly, by-yearly, yearly or at the end of its maturity.
This information is known to the public when you purchase, and you make the decision.
The risk is much lower, thus the rewards are lower. But if you buy well, you will always make your money back!
NOTE: There are minimums to when purchasing bonds. Each brokerage and financial institution has different policies. There usually aren’t any fees or commissions. Just find out about the minimum purchases and also the different time frames.
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