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A municipal bond, or “muni” as it is sometimes referred to is a debt security issued by a municipality, country or state to fund its capital expenditures. It’s important to firstly say that municipal bonds are usually exempt from federal taxes and most state and other local taxes. The only consideration however is that you should really reside in the state that the bond is issued as this increases the chances of keeping your municipal bonds tax-exempt.

Investors who agree to buying municipal bonds effectively loan money to the issuer in exchange for an agreed number of payments over a prearranged time period. At the end of this period, the bond reaches what is called the bond maturity date and the investor receives (if all goes well) the return on their investment including the interest allotted over the time period.

There are quite a number of uses for municipal bonds. For example they may be used to finance such developments as the construction of road networks such as highways or academic schooling facilities.
Perhaps the most common reason people invest in “munis” is because of their extremely favourable tax implications. They are most popular with high income earners as the return on their investment is larger due to the rewarding municipal bond rates they are entitled to.