Important Municipal Bond Terms

If you are interested in investing in a municipal bond, then it is important to understand all of the terminology surrounding it. The following three terms are the most important to know before investing:

Nominal Amount: This is the amount of money that the issuer agrees to pay interest on. It is usually paid back in full at the end of the loan, but there can be some variance in this rule depending on what type of municipal bond it is.

Coupon: This is the interest rate that is agreed upon when the bond is issued. Most of the time, the interest has a fixed-rate. The coupon is paid back to the purchaser at intervals, usually six months apart. Average interest rates stay around 4 percent.

Maturity Date: This is the date when the nominal amount will be returned in full. The length of time it takes for a bond to reach maturity varies from bond to bond. It can be anywhere from one month to more than ten years. After a bond has reached maturity and the nominal amount has been returned, the bond is finished, and you will not receive any more interest payments.

The great thing about municipal bonds is that you do not have to pay federal and state income taxes on the interest received from the bonds. This makes them ideal for investors who want to make a large return from their money. For the most part, these types of bonds are very straight forward, but it is still important to talk to an investor or financial planner to ensure you buy a bond that will meet your investment needs the best. You can find help at a local bank, investment institution, or even on the Internet.