The benefits of municipal bonds are the same as other bonds, but with a unique twist. Municipal bonds provide income that is typically tax-free to investors. If a municipal bond is purchased by a resident, they generally avoid all forms of taxation on the bond’s interest.
Municipal bonds are generally safe, especially general obligation (G.O.) bonds. As we discussed previously, there were only 21 G.O. bond defaults from 1970 to 2016. The taxing authority of municipalities is a big benefit to investors. Taxes must be paid, and municipalities rarely default on bonds backed by taxes. Revenue bonds are also generally safe, but defaults are more common than with G.O. bonds.
Municipal bonds are also beneficial for investors wanting to support their local area. Money lent to cities and states is used to directly benefit its citizens. Municipal investors can pat themselves on the back for funding their roads, schools, parks, airports, universities, economic development, and more.
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