Are municipal bonds safe, guaranteed and tax free ?

And how much do I expect to earn % per year ? Is it somewhere between 3 - 5 % ?

Some are safer than others. They are rated by the rating agencies as are corporate bonds. Those rated AAA are considered the safest, but even those are subject to default as those who invested in Washington Public Power found out the hard way. Some are insured which means they are guaranteed by the insuring company. They are tax free from federal taxes generally speaking. Some are subject to the alternate minimum tax. The return is based on duration of the bond, rating of the bond, and level of interest rates. There are some leveraged municiple bond funds that pay in excess of 6% but with a bond fund you can not be guaranteed that that rate will continue because bonds are continually being redeemed and traded. The general rate today is somewhere beteen 2.5 and 4%.

Municipal bonds are a safe investment provided the municipality which sold them is fiscally responsible. There are so many who are trying to be everything to everybody that operating costs are soaring. Whatever the rate of issue is, it will be in force for the life of the bond.

Nothing is guaranteed 100%, but they are safe if you buy bonds from an issuer with a high credit rating.

Municipal bonds are exempt from federal taxes. They may also be exempt from state tax if you live in the state where they were issued (or if your state has no income tax).

The coupon rate for municipals is lower than for most other bonds, but the real return is higher because of the favorable tax treatment.

For more information, check out http://www.investopedia.com/terms/m/muni...

Current rates on Munis are between 3-4%. You can see rates on Bloomberg's web site (see link below).

Most are safe -- but some municipal bonds have defaulted (e.g., Orange County, CA). You can look at the ratings by the rating agencies (e.g., S&P) to get an idea which are safe and which are not.

No federal tax is due on interest paid on Munis. State and local taxes could be due -- depending on the state. Some states and municipalities will tax interest on Munis that are issued in other states or regions. Some states do not.

I believe that taxes are due on any capital gains.