In exchange for purchasing a municipal bond, the municipality promises to pay you a predetermined amount once the bond matures. You can redeem a matured bond at your local financial institution or through the municipality itself. You also have the option to sell the bond before it matures on a secondary market, and you may be forced to redeem the bond if the municipality calls it.
Redeeming a Matured Municipal Bond
Once your municipal bond has matured, you may redeem it by presenting the bond certificate at your local bank or financial institution. You may need to show identification, like a driver's license or passport, to show that you're the rightful owner. If the original bond owner died and you're the beneficiary of the bond, you may need to show a death certificate before the bank will issue you the funds.
If you have any issues redeeming the municipal bond at a financial institution, contact the municipality and ask if it can redeem the bond directly.
Selling the Bond Before it Matures
You don't necessarily have to wait until your municipal bond matures to get cash for it. The Municipal Securities Rulemaking Board notes that bondholders can resell the bond before it matures on a secondary bond market. Municipal bonds aren't traded on the major stock exchanges, so you'll need to use a broker or an online brokerage firm like Scottrade to resell the bond.
If you choose to sell your bond before maturity, it's unlikely you'll receive the maturity value of the bond when you sell it. In fact, if interest rates have increased since you purchased the bond, you may not even receive the amount you originally paid for it. Brokers also charge a markdown fee that decreases your bond proceeds.
Redeeming a Callable Bond
Many municipal bonds are callable or redeemable before the maturity date. A callable bond usually falls into one of these categories:
- Optional Redemption. This gives the municipality the option, but not the obligation, to redeem the bond after a certain amount of time.
- Extraordinary Redemption. This allows the municipality the ability to call the bonds if an extraordinary event occurs, such as if the project the municipality was working on is destroyed.
- Sinking Fund Redemption. This forces the municipality to call the bond -- or a portion of the bond -- according to a predetermined schedule.
The municipality will pay you a call price for the bond if you're forced to redeem it. According to the Securities and Exchange Commission, the call price usually is the face value of the bond.