Own or Buying a CD? Compare CD vs Muni Bonds.

Since Federal Reserve has started raising rates since March 2022 to control the inflation, we have seen a hugh boom in bank CD ( certificate of deposit) buying across board who are seeking higher interest income. Current CD rates anywhere between 4% and 6% are elevated during recent times, as rates over the last 15 to 17 years were extraordinarily low — and that was the anomaly.

Investment grade municipal bonds offer better yields for longer term, most offers federal tax exempt level which can improve yield and as interest rates decline, the value of existing munis is likely to appreciate. By increasing bond holdings during the period of elevated issuance, investors can position themselves to benefit from the potential price gains associated with a rate cut. Normally before the election cycle, we see a higher influx of municipal bonds issuance which can provide attractive returns over the long term. Also, As interest rates decline, the value of existing munis is likely to appreciate.

Look at the comparison of how a typical CD will stack against the investment into municipal bonds vs CD. Based on your comfort level and risk tolerance, you can make informed choices. If you are in higher tax brackets, look closely and think thoroughly.

There is also online tools available which allows you to compare your investments into municipal bonds with CD. Here is one for your reference - CD vs Municipal Bods.

There are few cases where investment into municipal bonds over CD will not make much sense such as during rising rates environment for a short term CDs, when investment amounts are very small ( less than $25K) as municipal bonds purchase may add transactions costs etc.

Reach out to your Financial Advisor /Tax Professional for detailed advice before making any decisions.