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Disadvantages of municipal bonds.
Think Twice Before Buying Tax-Free Municipal Bonds
While stable, income-producing bonds warrant a position in any diversified portfolio, there are drawbacks to owning municipal bonds, or "munis." Though they are exempt from federal taxes and are relatively low-risk, munis are not necessarily exempt from state and local taxes.
And their interest rate is typically lower than what corporate bonds offer. For these reasons and more, it's important to do your due diligence—it's possible that municipal bonds aren't the right choice for you.
List of municipal bonds for sale
Key Takeaways
- The interest you receive from muni bonds is free from federal taxes, but there may be state or local taxes or both.
- Your bond interest will be counted as income in calculating the taxable amount of your Social Security income.
That could increase the amount you owe.
- The interest rate paid on muni bonds is generally lower than rates for corporate bonds. You need to determine which deal has the better real return.
- As with any bond, there is interest rate risk.
If your money is tied up for 10 or 20 years and interest rates rise,
- who are the major buyers of municipal bonds
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