How to Buy California Tax-Free Municipal Bonds

How to Buy California Tax-Free Municipal Bonds
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States use bonds as a way to raise money for infrastructure projects like schools, roads, housing, parks, levees and other public facilities. California bonds also finance research and development related to stem cell research. The investor agrees to lend California a certain amount of money in exchange for a predetermined interest rate. As municipal bonds (also called munis) are usually tax-free, the interest rate is lower than the rate found on comparable bonds issued by corporations.

Open a brokerage account at one of the participating brokerage houses listed on the most recent offering. This information is available on the state of California's website. You must have an account with one of these firms in order to purchase bonds.

Research the bonds or notes offered. Download the Preliminary Official Statement for the bonds to find out more information about the maturity dates and the types of projects they will be funding in order to make the most informed decision about which bond issue to invest in. Pay close attention to the bond rating. This will tell you how risky the bond issue is; that is, what is the likelihood of not being paid back by the state of California. Three different firms have rated current California bonds: Fitch: BBB Moody's: Baa1 Standard & Poor's: A-

Contact the broker and place your order. You can do this either online or over the phone. For instance, the current offering is managed by JP Morgan, Morgan Stanley, and Prager, Sealy & Co. You need to have an account at one of these institutions in order to purchase the issue.