Function

• The issuer of municipal bonds offers the securities to raise short-term revenue. The bond accrues interest over time at a variable or fixed rate.
  
  

Purpose

• Usually, issuers of municipal bonds seek a large injection of capital to finance a development project.
  
  

Purchasing

• Investors may purchase municipal bonds directly from the issuer or from other bond holders.
  
  

Tax Benefits

• Municipal security bonds provide interest income from the issuer to the holder. Most municipal bonds are tax-exempt. Therefore, the federal government usually does not tax income derived from municipal bonds.
  
  

Build America Bonds

• The American Recovery and Reinvestment Act of 2009 created taxable municipal bonds called "Build America Bonds." These bonds provide special tax credits and federal subsidies to the holders or issuers.