A:

The type of bond determines where you can purchase it, so you need to decide which type of bond you would like to purchase first.

Bonds are debt obligations. Federal bonds are issued by the federal government, while municipal bonds are issued by state governments or local municipalities. In either case, the revenues from the bonds are generally used for financing government projects or activities. These bonds are also different from regular bonds in that many of them offer special tax incentives for the investors.

For federal bonds, the interest earned is generally exempt from any state and local taxes. For municipal bonds the interest earned is free from federal taxes and generally any associated taxes from the region where the bond was issued.

Investors can purchase both federal and municipal government bonds from a variety of sources such as brokerages or banks. The exception to this occurs with federal savings bonds. The U.S. Treasury offers a service whereby you can purchase these bonds directly from the U.S. government through its website or a regional Federal Reserve Bank.

For further reading, please see The Basics of Federal Bond Issues, Advantages of Bonds and The Lowdown on Savings Bonds.

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