This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

What Are Municipal Bonds?

NEW YORK (TheStreet) -- While the returns on municipal bonds are not going to put you on par with Donald Trump, in times of market uncertainty, there's nothing wrong with slow and steady. Even better, they're exempt federal income tax.

Municipal bonds, also known as munis, are debt securities issues by states and local governments looking to raise money to build new roads, schools or to pay for other initiatives. The interest paid to investors over the course of the muni is tax free at the federal level. And, if the investor resides in the city or state that issued the debt, state and local taxes are normally waived as well. However, if you sell the muni for a profit, the capital gains from the sale are taxable.

Muni bonds, which may have maturity dates more than 50 years away, come in two types. The distinction arises from how the municipality pays the interest on the debt. The first type is called a revenue bond; these munis make interest payouts from a revenue stream such as highway tolls. General-obligation municipal bonds, like Treasuries, are backed by the ability of the issuer to levy taxes, if necessary, to pay the interest and repay the loan.

The mutual fund industry has been quick to tap the investor interest in modest but tax-exempt returns of municipal bonds. There are many muni bond funds from which to choose, including funds that focus on munis from within a single state. These funds are not only tax free at the federal level, but also at the state and local level for residents.

Are municipal bonds right for you? Learn how to compare yields on municipal bonds vs. taxable bonds here.

This article was written by a staff member of TheStreet.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs