What are municipal bonds and are they a good investment?

Muni is good investment for people in high tax bracket.

Muni is exempt from federal and local tax (the muni has to be issued by your local muni).

Therefore the interest is totally tax free. So it won't jack up your tax rate.

Be careful, muni's ratings vary. Make sure you get good quality muni.

Cities sell municipal bonds to raise money for streets, city buildings, schools, etc. They pay a very low rate of interest. In my opinion that rate will not bet the rate of inflation... which means you could actually lose buying power.

to add just a tad to the reply by the 1st responder. Muni interest is free from federal taxes and perhaps state and local taxes depending on the the state and locality that you live in and the state that the munis originate from.

The problem today is that inflation is making them a poor investment option. Munis are yielding less than 4% currently and inflation is running about 5 to 7% despite government claims to the contrary. However, a muni money market fund is not a bad investment currently. Fidelity muni money market funds currently yield between 3 and 4% which on a tax free basis is certainly better than what equities are currenly returning.

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