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Government bonds, or municipal bonds, are issued by cities, counties and states in order to raise money for community projects. Projects may include highways, schools or building new hospitals. The primary reason why people buy these bonds are that interest paid to the owner of the bond is tax exempt from all Federal taxes. Additionally the owner is exempt from local taxes if they reside in the state in which the bond was purchased. There are many benefits to purchasing this kind of bond, but as with any investment there are a few tips that should be considered before the purchase of the bond.
There are two types of municipal bonds that individuals can purchase. The two types are general obligation and revenue bonds. General obligation bonds are issues to individuals to pay for city or state projects, like schools and road repair. Revenue bonds are issued by a certain sanctioned company approved by the city or state. For example a utility or water company and the bond holders are paid their interest out of revenue received by the company. This revenue is from the bill payments that water or utility customers pay monthly.Many non-profit organizations invest in municipal bonds because of the tax break, as do high income individuals and families.
While anyone can invest in municipal bonds, there are a few tips to remember when purchasing municipal bonds. Is the area where the bonds are derived from a economically sound place, with a diverse economy, large population and a history of paying their financial obligations. If the answer to all of these questions is yes, than the municipal bonds may be worth purchasing. Most public libraries have databases with county, city and state records of which this information can be obtained. Even public and government offices are assigned a credit rating, remember to check the credit score of the municipality of which you are considering buying funds.
