What are municipal bonds?

It takes a lot of money to run a city. The people in your community will always want more amenities to make the city a better place to live in. Like owning a home, there is no end to the projects that all require substantial money.

There are a few ways to get money for city projects like roads and public buildings. One way to get funding is through municipal bonds.

Here are answers to some of the most common questions about municipal bonds.

What projects do municipal bonds fund?

Every city depends on specific pieces of infrastructure to provide services to its citizens. Children need to go to school and the people need to drive to stores and places of employment. Cities and counties depend on municipal bonds to fund projects such as:

  • Sewer systems
  • Highways
  • Schools
  • Hospitals
  • Water treatment facilities

Municipal bonds are critical to helping cities and counties function for the benefit of their citizens. When your citizens are happy with their community, your city can be more successful.

How do they work?

Municipal bonds are debt securities and work similarly to a loan. To raise money for a project, a city sells a municipal bond with a set value to an investor. In exchange for the money from the bond, the city pays the investor back over a fixed amount of time with interest.

The city can typically save a substantial amount since municipal bonds usually have significantly lower interest rates compared to corporate bonds. On the investor’s side, a municipal bond is less risky, since it is typically backed by the government entity that issued it.