Investing Tax Free
 

Municipal Bond Rates

 

Like any other bonds, when buying municipal bonds, you will have to consider the municipal bond rates. Some municipal bond rates are better than others. However, when considering and comparing municipal bond rates to other bond rates, you should take into account the tax benefits of municipal bonds.

 
What are municipal bond rates?

What people often refer to as municipal bond rates are coupon rates. A coupon rate is the interest rate given as a percentage of par value. That means, when you see a municipal bond with a rate of, say, 6%, it means the municipal bond is paying interest as a % of par value or $60 per $1,000.

The municipal bond rates are not the prices of the municipal bonds or the municipal bond yields. The price of a municipal bond is the amount of bond sold at the end of the previous trading day as a percentage of par value.

The municipal bond yields are the rates of return of the municipal bonds which should be used to compare municipal bonds against each other and compare municipal bonds against other types of bonds and other types of investments.

 
Best municipal bond rates

Of course, the best municipal bond rates are the highest rates. However, most of the time it is difficult to find low cost municipal bonds with high rates. When seeing lower municipal bond rates compared to other bond rates, many bond investors choose to invest in other types of non-tax exempt bonds such as corporate bonds.

However, if they calculated the municipal bond yields they might find out that munis with lower rates actually give better yield than corporate bonds with higher rates. There are many factors that affect municipal bond rates.