What Are Municipal Bonds?

2007-03-08 10:33:40

( Legal )



Municipal bonds are corporate debt instruments that show an organization’s commitment to pay an amount of money within a specific timeframe. A fixed interest rate is normally charged on municipal bonds. The interest rate is not subject to federal taxes; however, there are some rare instances when it is not the case. Corporations that wish to benefit from exemptions on state and local taxes should obtain municipal bonds in the state where the corporation is located.

There are several kinds of municipal bonds that are obtained from any government agency below state level:

Revenue bonds are paid using the revenue that is received once the construction is accomplished. Roads, highways and bridges that charge tool fees, corporate lease payments charged to the city government are some examples of revenue bonds. Revenue bonds tend to be charged with higher interest rates due to its dependability on the profit of a construction project.

Assessment bonds are paid using the tax assessment value of certain properties that are found within the area of the issuing body’s municipality.

General obligation (Go) bonds are paid based on the trust and the ability of the issuer. These bonds are charged the lowest interest rates compared to other types of bonds. Go bonds are normally utilized when immediate funding is needed to cover certain expenses.

Municipal bonds differ from bid bonds, Los Angeles bail bonds and notary bonds. A bid bond is used to secure the price of contract through bidding. If a contract is awarded to a particular bidder, the price on the bid must then be honored once awarded to a certain party. Los Angeles bail bonds on the other hand are used to guarantee that a party who is out on bail returns to court at a specific date. Lastly, a notary public to obtain some form of assurance before the individual is appointed by the state uses notary bonds. In the event the notary public becomes negligent with specific duties, money must be paid to make up for the loss of the state.


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