Municipal bonds are bonds issued by local governments, state governments, districts and other entities that serve a civic purpose. They fall into one of two categories: either a general obligation (G.O.) bond or a revenue bond.
When a municipality issues a bond, they are borrowing money to be paid back at a later date. Tax regulations governing municipal bonds generally require all money raised by a bond sale to be spent on on-time capital projects within three to five years of their issuance.
AUSA prefers this type of investment because municipal bonds are paid back with interest and are generally exempt from federal and state income taxes.