Municipal bonds come in denominations of as little as $1000, although a$10,000 minimum is more common. You can purchase municipal bonds through banks and brokerage firms.
Although billions of dollars of municipal bonds are on the market, there is no centralized marketplace that trades municipal bonds as there is for stocks. Instead, they are bought and sold by many banks and brokerage firms that specialize in municipal bonds. About 2700 securities dealers are registered with the Municipal Securities Rulemaking Board (MSRB) in Washington, D.C. to buy and sell municipal bonds. To buy a municipal bonds, you must use a broker or banker who is tied into this specialized network.
As with most other types of bonds, brokers generally do not charge a separate commission to buy or sell municipal bonds. They make their money by imposing a small markup. Transaction costs on municipal bonds compare favorably with those on other securities. When you buy a bond in the secondary market, you would pay an extra 0.5 to 3 percent, depending on the size of the bond and some other factors. For small lots or lower-rated bonds, the broker markup could be 3 to 4 percent.
Not all municipal bonds are able to maintain their tax-exempt status through the life of the bond. The IRS has gotten tougher on municipal bonds, and can now tax municipal bonds investors when it finds that the bonds don't comply with tax laws and it can't reach a settlement with the issuer. While most bonds will continue to maintain a tax-exempt status, that is no longer guaranteed.
Like most bonds, the best time to buy municipal bonds would be during periods of high interest rates. As interest rates drop, the value of existing bonds increases. Buying bonds near the peak of interest rates would put you in a strong position. As interest rates drop, you could hold the bond and continue to enjoy high returns, or you could sell the bond at a premium, earning a tidy profit on your investment.
By contrast, the worst time to buy municipal bonds would be during a period when interest rates are low and are beginning to rise.That would put you in the position of either collecting low rates throughout the term of the bond, or selling it out at a loss. You could opt for bonds with shorter terms, but the shorter the term, the worse the return. When rates are low, if you need income, you may not have much choice but to buy more bonds, but it's a much better option to buy bonds when interest rates are high.
