What is the value of municipal bonds versus earning 3% interest with a savings account?

Question

Let's say I'm investing $455 into a savings account each month. Municipal bonds would be issued by the Commonwealth of Kentucky.

Answer 1

Municipal bonds are usually tax free for U.S. income taxes.
In-state municipal bonds are usullay tax free for your state's income taxes.

If you know your combined State and Federal tax rate, you can make a fair comparison.

For example, lets say your combined rate is 15% and your investing $1,000. The savings account will earn you $30 less $4.50 for taxes. (15% x $30). Net $25.50

Same situation, but you get a municipal bond that earns 2.5%. You make $25 tax free.

So the trick is, what is the difference in the rate and what is the tax difference. If you get the same rate, your ahead with the muni bonds.

Answer 2

Depends on the yield of the municipal bond. Also keep in mind that a municipal may not be very liquid, that is if you need the cash it may take some time to sell it, and it may lose value, especially if market interest rates rise.

Answer 3

that depends on the return of the bond and the time frame