You can buy municipal bonds through a broker, directly from your state or local government, or through a bank
Municipal bonds are sold in three main ways: through a brokerage firm (online or traditional), directly from the issuer (your state, city, or local authority), or through a bank's bond desk. Most individual investors use a broker because they offer a wide selection and handle the paperwork. The route you choose depends on whether you want to pick specific bonds, how much you want to invest, and whether you prefer to work with a person or manage it yourself online.
Each route has different costs, different bond selections, and different levels of service. Understanding what each offers helps you decide which fits your situation.
Key Takeaways
- Brokerages (Fidelity, Schwab, Vanguard, and others) let you buy individual bonds or bond funds and charge a commission or markup on each purchase.
- Direct purchase from a government issuer costs nothing but limits you to bonds from that specific city, county, or state.
- Banks can sell you municipal bonds but typically charge higher markups than brokerages and offer fewer choices.
- Municipal bond funds and ETFs let you own a basket of bonds with a single purchase and lower minimum investments than buying individual bonds.
- The secondary market (buying bonds that have already been issued) is where most individual investors actually buy, and it operates through brokers.
Buying through a brokerage firm
A brokerage is a financial company that buys and sells securities on your behalf. Major brokerages include Fidelity, Charles Schwab, Vanguard, E*TRADE, and TD Ameritrade. Each maintains an inventory of municipal bonds and can show you what is available, the interest rate, the maturity date, and the price. You open an account, fund it, and then search for bonds that match what you want.
When you buy an individual bond through a broker, you pay a markup — a small percentage added to the bond's price. This is how the broker makes money. Markups on municipal bonds typically range from 0.5% to 2% of the purchase price, though they vary by broker and by bond. Some brokerages disclose the markup clearly; others bury it in the price. Before you buy, ask what the markup is or compare the price the broker quotes to what you see on a municipal bond pricing website like MSRB (the Municipal Securities Rulemaking Board) to get a sense of the fair price.
Brokerages also offer municipal bond funds and exchange-traded funds (ETFs). These are baskets of many bonds managed by a professional. You buy one share or unit and own a piece of dozens or hundreds of bonds. The minimum investment is usually much lower than buying individual bonds (often $1,000 or less for a fund, compared to $5,000 to $25,000 for an individual bond). The trade-off is that you do not pick which bonds are in the fund — the fund manager does — and you pay an annual fee (called an expense ratio) that ranges from 0.2% to 1% per year.
Buying directly from the issuer
Some cities, counties, and states sell bonds directly to residents without a broker. This route costs nothing — no markup, no commission, no fee. You contact the issuer's finance office or treasury department, ask about upcoming bond offerings, and buy directly if you are interested.
The catch is selection: you can only buy bonds from that specific issuer. If you live in Ohio and want to buy bonds from your city, you can do that, but you cannot also buy bonds from a city in Texas or a county in California through the same direct purchase. This works well if you want to support your local government and are comfortable owning bonds from one place. It does not work well if you want to diversify across different issuers and regions.
To learn about your city or state offers direct sales, contact the finance department or treasurer's office. Many post information on their websites about upcoming bond offerings and how to purchase.
Buying through a bank
Banks have bond desks that can sell you municipal bonds. The process is similar to buying through a broker: you work with a banker, they show you available bonds, and you purchase through your account. However, banks typically charge higher markups than brokerages (often 1% to 3% or more) and offer a smaller selection because they do not maintain as large an inventory.
Banks are useful if you already have a relationship with them and prefer to handle everything in one place, or if you want personal guidance from someone you know. For most investors looking for the best price and widest selection, a brokerage is the better choice.
Understanding the secondary market
Most municipal bonds bought by individual investors are not new issues — they are bonds that were issued years ago and are now being resold by other investors. This is called the secondary market. When you buy through a broker, you are almost always buying on the secondary market, even if the interface does not make that clear.
Secondary market bonds have already been issued and are trading at prices that reflect current interest rates and the issuer's credit quality. If interest rates have risen since the bond was issued, the bond's price will be lower (because new bonds pay more). If interest rates have fallen, the price will be higher. This is normal and is how the bond market works.
The advantage of the secondary market is liquidity: there are many bonds available at any given time, so you can find one that matches your goals. The disadvantage is that you cannot know the exact price until you ask — the market is less transparent than stock markets, and prices vary by broker and by the specific bond.
What to compare when choosing where to buy
Different routes have different costs and different selections. Here is what matters:
| Route | Minimum Investment | Cost | Selection | Best For |
|---|---|---|---|---|
| Brokerage (individual bonds) | $5,000–$25,000 | 0.5%–2% markup | Hundreds to thousands | Investors with larger amounts to invest who want specific bonds |
| Brokerage (funds/ETFs) | $500–$1,000 | 0.2%–1% annual fee | Diversified basket | Investors with smaller amounts or who want when ready diversification |
| Direct from issuer | Varies | None | One issuer only | Investors who want to support their local government with no fees |
| Bank | $5,000–$25,000 | 1%–3%+ markup | Limited | Investors who prefer working with their existing bank |
Getting started with a brokerage account
If you decide to buy through a brokerage, the first step is opening an account. Most major brokerages let you open an account online in 10 to 15 minutes. You will need your Social Security number, a government ID, and proof of address. After your account is open and funded, you can search for municipal bonds.
When you search, you will see the bond's issuer, maturity date, coupon (the interest rate it pays), price, and yield (the return you will earn if you hold it to maturity). Take time to understand what you are looking at. Many brokerages have educational resources and customer service teams that can walk you through the process if you are new to bond investing.
Before you buy your first bond, decide what you want: How long do you want to hold it? How much income do you need from it? Do you want to diversify across many issuers or concentrate in one region? These questions will help you narrow down which bonds make sense for you.
Frequently Asked Questions
Do I need a lot of money to buy municipal bonds?
Individual bonds typically require $5,000 to $25,000 per bond, depending on the issuer and the broker. If you have less, municipal bond funds or ETFs are a better option — many have minimums of $500 to $1,000 or even lower. You can own a diversified portfolio of bonds through a fund with a small initial investment.
What is the difference between buying a new bond offering and buying on the secondary market?
New offerings are bonds being issued for the first time, usually announced by the government issuer. Secondary market bonds are existing bonds being resold by other investors. Most individual investors buy on the secondary market because there are more bonds available and you can buy them anytime, not just when a new offering is announced. Prices are different, but both routes are legitimate.
Can I sell a municipal bond before it matures?
Yes, you can sell any municipal bond you own on the secondary market through a broker. The price you receive depends on current interest rates and the bond's credit quality — you may get more or less than you paid. If you think you might need the money before the bond matures, this is something to consider before you buy.
Which brokerage is best for buying municipal bonds?
Fidelity, Schwab, Vanguard, and TD Ameritrade all offer municipal bonds with reasonable markups and good customer service. Compare their markups, the size of their inventory, and whether they offer the type of bonds you want (individual bonds, funds, or both). Many investors choose based on whether they already have an account there.
Do I pay taxes on municipal bond interest?
Most municipal bond interest is exempt from federal income tax, and often from state and local taxes too if you buy bonds from your home state. This is why municipal bonds are popular with higher-income investors. However, tax rules vary by bond and by your situation, so check with a tax professional before you buy to understand how a specific bond will affect your taxes.