Where to buy municipal bonds

You buy municipal bonds through a broker — either a traditional brokerage firm, an online broker, or your bank's investment department. You cannot buy them directly from the municipality or the issuer. The broker connects you to the secondary market, where existing bonds trade, or to new bond offerings that haven't yet been sold to the public.

Most full-service brokers like Fidelity, Charles Schwab, and Merrill Lynch offer municipal bonds. Online brokers including E*TRADE and TD Ameritrade also carry them. If you bank at a large institution like Bank of America or Wells Fargo, you can ask their investment services division about municipal bond purchases. Smaller regional brokers and independent financial advisors can also execute these trades.

The broker charges you a markup or commission on the purchase — this is how they make money on the transaction. The amount varies by broker and by bond, but you should ask what you'll pay before you commit.

Key Takeaways

  • You need a brokerage account (or investment account through your bank) to purchase municipal bonds; you cannot buy them directly from the issuer.
  • Municipal bonds are sold on the secondary market through brokers, meaning you're usually buying bonds that were already issued, not brand-new offerings.
  • Your broker will charge a markup or commission on each purchase, and you should ask for the exact cost before you buy.
  • The purchase process takes minutes once your account is open: you search for the bond, review the details, and confirm the trade.
  • You will receive a confirmation statement showing the bond's par value, coupon rate, maturity date, and the total price you paid.

Opening a brokerage account

Before you can buy any bond, you need an account with a broker. This is a straightforward process that takes 10 to 15 minutes online. You'll provide your name, Social Security number, date of birth, address, and employment information. The broker will verify your identity and run a background check.

You'll choose the type of account: a regular taxable account, an IRA, a Roth IRA, or a trust account. Municipal bonds are often held in taxable accounts because their tax-free status is most valuable to higher-income earners, but you can hold them in retirement accounts too. Once your account is approved — usually within one business day — you can fund it by linking a bank account or transferring money from another brokerage.

You do not need a minimum balance to open most brokerage accounts, though some brokers require a deposit before you can trade. Check the broker's website for current requirements.

Searching for and reviewing specific bonds

Once your account is funded, log into your broker's platform and navigate to the fixed income or bonds section. Search by the issuer name (the city or state), the maturity date you want, or the coupon rate. Most brokers let you filter by credit rating, yield, and other characteristics.

When you find a bond you're interested in, review the official statement or bond details. This will show you the par value (usually $5,000 or $1,000), the coupon rate (the interest rate), the maturity date, the call date (if any), and the credit rating. The listing will also show the current price — which may be above or below par — and the yield to maturity, which is the actual return you'll earn if you hold the bond to maturity.

Pay attention to the call date. Many municipal bonds are callable, meaning the issuer can pay them off early if interest rates drop. If a bond is called, you get your principal back but lose the stream of future interest payments. A bond trading at a premium (above par value) is at higher risk of being called.

Understanding the price and yield

Municipal bonds trade at prices above or below their par value depending on interest rates and credit conditions. If you buy a bond with a 4% coupon when new bonds are yielding 3%, the bond will trade at a premium because its coupon is attractive. If you buy a bond with a 2% coupon when new bonds yield 4%, it will trade at a discount.

The yield to maturity is what matters most. This is the total return you'll earn if you hold the bond until it matures, accounting for the price you paid, the coupon payments, and the par value you'll receive at the end. A bond trading at a discount has a higher yield to maturity than its coupon rate; a bond trading at a premium has a lower yield to maturity.

Your broker will display both the coupon rate and the yield to maturity on the bond listing. Use the yield to maturity to compare bonds, not the coupon rate alone.

Placing the trade

When you've decided on a bond, click to purchase it. Your broker will show you the exact price you'll pay, including the markup or commission. Review this total cost before you confirm. The trade executes when ready, and you'll receive a confirmation statement within minutes.

Most brokers allow you to buy bonds in quantities of one (meaning one $5,000 or $1,000 par value bond) rather than requiring a large minimum purchase. Some bonds, especially newer offerings, may have higher minimums — the listing will specify this.

After the trade settles — usually within two business days — the bond will appear in your account holdings. You'll begin receiving coupon payments on the scheduled dates, typically semi-annually.

What happens after you buy

Once you own the bond, you have three choices: hold it to maturity, sell it on the secondary market before maturity, or let it be called if it's a callable bond. Your broker will send you coupon payments on the payment dates specified in the bond's terms. These payments are deposited into your cash account and can be reinvested or withdrawn.

If you need to sell before maturity, log into your broker's platform, find the bond in your holdings, and place a sell order. The price you receive will depend on current interest rates and the bond's credit quality. You may sell at a gain or a loss compared to what you paid.

Keep your confirmation statements and track your cost basis for tax purposes. When you sell or when the bond matures, you'll need to report any capital gains or losses on your tax return.

Costs and fees to watch for

The main cost is the markup or commission your broker charges. This is typically 1% to 2% of the bond's value, though it varies. Some brokers charge a flat commission per trade; others build the markup into the price. Ask your broker to disclose the exact cost before you buy.

There are no ongoing annual fees to hold municipal bonds in most brokerage accounts, though some brokers charge account maintenance fees if your balance falls below a certain level. Check your broker's fee schedule.

If you sell before maturity, you may pay another markup or commission on the sale. If you hold to maturity, there is no sale fee — the bond straightforward pays off at par value.

Frequently Asked Questions

Do I need a lot of money to start buying municipal bonds?

No. Most municipal bonds have a par value of $5,000, and you can buy a single bond. Some brokers offer bonds with $1,000 par values. You'll also pay the broker's markup on top of the bond price, so budget for that. There is no minimum account balance required at most brokers.

What's the difference between buying a new municipal bond and a bond on the secondary market?

New bonds are offered directly by the issuer through an underwriter, usually in large quantities. Secondary market bonds are existing bonds being resold by other investors. Most individual investors buy on the secondary market because the selection is larger and you can buy just one or two bonds. New offerings are often available only through brokers who are part of the underwriting syndicate.

Can I buy municipal bonds through my retirement account?

Yes. You can hold municipal bonds in a traditional IRA, Roth IRA, SEP IRA, or other retirement account through most brokers. However, the tax-free interest is wasted in a retirement account because retirement accounts are already tax-deferred. Municipal bonds are most valuable in taxable accounts for higher-income earners.

What if I want to sell my bond before it matures?

Log into your broker's platform, select the bond from your holdings, and place a sell order. Your broker will show you the current market price. You'll receive the proceeds in your cash account within two business days. The price may be higher or lower than what you paid, depending on interest rate changes and the bond's credit quality.

How do I know if a municipal bond is safe?

Check the bond's credit rating, which is assigned by agencies like Moody's, Standard & Poor's, or Fitch. Ratings range from AAA (safest) to C or lower (highest risk). Your broker's platform will display the rating. You can also read the official statement, which describes the issuer's finances and the project the bond funds. Bonds issued by large, stable cities or states are generally lower-risk than bonds from smaller or financially stressed municipalities.