Remember the term “passbook savings account?” Remember taking your passbook to the bank with you and when you made a transaction, the teller would place your book into the machine which would type in the amount of your deposit or withdrawal? That passbook had a funny smell, too. How things have changed. Who would have thought that in just a few years, financial accounts would be accessed from home with a personal computer?
There is one thing that hasn’t changed: Tax-free municipal bonds. These are also called ‘muni’ bonds.
There are two types of municipal bonds: General Obligation and Revenue. These bonds are attractive investments because they offer tax-free interest on a federal level and maybe locally, too.
General Obligation bonds are those that are issued by local government to pay for new schools or sewer systems. The interest that is paid on GO bonds comes from the ability of the local government to tax the citizens.
Revenue bonds are those that are issued by a state or local government backed agency such as a utility company. The interest paid on these bonds is generated by the services that the company provides which is billed to the customers that they support.
The comparison to a regular savings account finds that tax-free municipal bonds offer a better return on your money because of their tax-free status and because they have higher yields that a passbook savings account. In fact, they are much better than most savings options at your local bank.
The other reasons to consider tax-free municipal bonds include:
- Solid principal preservation. These are considered to be a high credit quality investment vehicle, which means that they are considered very safe.
- Insurability. Municipal bond issuers insure these bonds on a large-scale basis.
- Liquidity. Muni bonds can be sold through a network of over 1,000 broker-dealer, and dealer-bankers across the nation. Market conditions dictate the maturity value of the bonds.
- Flexibility. There are over 6,000 insurers which can give you a varied selection of bonds from which to make a selection that will help you meet your financial investment goals.
This is just another avenue that is available to investors to get more for their money. Is this something you should look into? Check with your financial adviser to be sure.
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October 10 2009
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October 22 2009
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