Lux Investing

what is the value of investing in municipal bonds vs. earning 3% interest every month in a savings account?

Public Comments

1. The interest earned on municipal bonds is generally exempt from federal income tax but interest earned in a savings account is subject to income tax.
2. Higher after tax rate of return in exchange for decreased liquidity and a fixed rate. Savings accounts change their rates frequently and you will have state and federal taxes taken out of a savings account. For me living in Kentucky it would work like this: 3% Muni with a face value of $10,000 will earn $300 per year, no taxes, I keep all $300 3% Savings $10,000 balance will earn $300 per year minus $25% federal taxes = $75 minus 6% state taxes = $24. so I keep $201. to beat a 3% muni my bank would have to offer me 4.35% for me to take away as much money as a Kentucky Muni Bond Remember this, no such thing as a bad investment. All investments serve a purpose. Savings accounts are great if you need to get to the money in 0-3 years, they are terrible for long-term growth. Bonds are great for diversification and current income.