What Are Municipal Security Bonds?
Municipal bonds are securities issued by a city or local government to raise revenue. In most cases, interest accrued by municipal bond holders goes untaxed by the federal government.
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Function
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The issuer of municipal bonds offers the securities to raise short-term revenue. The bond accrues interest over time at a variable or fixed rate.
Purpose
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Usually, issuers of municipal bonds seek a large injection of capital to finance a development project.
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Purchasing
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Investors may purchase municipal bonds directly from the issuer or from other bond holders.
Tax Benefits
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Municipal security bonds provide interest income from the issuer to the holder. Most municipal bonds are tax-exempt. Therefore, the federal government usually does not tax income derived from municipal bonds.
Build America Bonds
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The American Recovery and Reinvestment Act of 2009 created taxable municipal bonds called "Build America Bonds." These bonds provide special tax credits and federal subsidies to the holders or issuers.
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- Photo Credit savings bonds image by judwick from Fotolia.com
