Municipal Bond

AAA

DEFINITION of 'Municipal Bond'

A debt security issued by a state, municipality or county to finance its capital expenditures. Municipal bonds are exempt from federal taxes and from most state and local taxes, especially if you live in the state in which the bond is issued.

Also known as a "muni."

INVESTOPEDIA EXPLAINS 'Municipal Bond'

Municipal bonds may be used to fund expenditures such as the construction of highways, bridges or schools. "Munis" are bought for their favorable tax implications, and are popular with people in high income tax brackets.

VIDEO

Loading the player...
RELATED TERMS
  1. 25% Rule

    1. The idea that a local government's long-term debt should not ...
  2. Tax-Exempt Sector

    The market niche comprised of investment vehicles exempt from ...
  3. Straight Bond

    A bond that pays interest at regular intervals, and at maturity ...
  4. Municipal Bond Fund

    A mutual fund that invests in municipal bonds, or "munis." Municipal ...
  5. Municipals-Over-Bonds Spread - ...

    The difference in yields between a municipal bond and a Treasury ...
  6. Private Purpose Bond

    A type of municipal bond that is issued to finance a project ...
RELATED FAQS
  1. Which securities are considered investment grade?

    In finance, government and private fixed income securities, such as bonds and notes, are considered investment grade if they ... Read Full Answer >>
  2. How does an investor make money on a zero coupon bond?

    An investor makes money on a zero-coupon bond by being paid interest upon maturity. Also known as a discount bond, a zero-coupon ... Read Full Answer >>
  3. What kind of securities should a risk-averse investor buy?

    While most investors are focused on investment options with high rates of return, some individuals are more concerned with ... Read Full Answer >>
  4. What is "whoops" and how did it come to refer to one of the biggest municipal bond ...

    The Washington Public Power Supply System (WPPSS) was formed in the 1950s to make certain that the Pacific Northwest had ... Read Full Answer >>
  5. When should a company consider issuing a corporate bond vs. issuing stock?

    A company should consider issuing a corporate bond versus issuing stock after it has already exhausted all internal forms ... Read Full Answer >>
  6. How is a corporate bond taxed?

    A corporate bond is taxed through the interest earned on the bond, through capital gains or losses earned in the early sale ... Read Full Answer >>
Related Articles
  1. Retirement

    Immediate Annuities: More Income and Lower Taxes

    These instruments may shed their bad rap to bring you a hefty tax break.
  2. Insurance

    Municipal Bond Tips For The Series 7 Exam

    Learn to distinguish between general obligation and revenue bonds to ace this test.
  3. Bonds & Fixed Income

    Bonds: They're Not Just For Seniors

    In this article, we'll show you how investors at any stage of life can keep these fixed-income investments. Keep Reading.
  4. Investing Basics

    3 Essential Rules For New Investors

    Find out how beginner investors can invest sensibly, suitably and simply.
  5. Bonds & Fixed Income

    The Basics Of Municipal Bonds

    Investing in these bonds may offer a tax-free income stream but they are not without risks.
  6. Taxes

    Avoid Tricky Tax Issues On Municipal Bonds

    Learn the rules every investor should know before buying into this "tax-free" investment.
  7. Taxes

    Taxation Rules For Bond Investors

    Several factors affect the taxable interest that must be reported. Learn more here.
  8. Credit & Loans

    Build America Bonds: Should You Buy?

    BABs are part of the recovery act created by the Obama administration. Find out how they work and whether they could work for you.
  9. Taxes

    Why Retirees Can't Count On Muni Bonds

    Interest may not be tax-exempt for seniors with Medicare or Social Security benefits.
  10. Personal Finance

    Get A Short-Term Advantage In The Money Market

    This investment vehicle is often the perfect stop-gap measure for growing your money.

You May Also Like

Hot Definitions
  1. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  2. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  3. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  4. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  5. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center