Municipal bonds as a group, sometimes referred to as “munis,” are specific bonds issued by a county, city, or state government for numerous community projects that can range from building a school or a hospital to the construction of a new sewage system or the expansion of an existing highway. Munis are exempt from local and state taxes and can be a good investment for people who belong to the middle and higher tax brackets. General obligations bonds, or GO for short, are municipal bonds issued to pay for community projects such as building a school. They are backed by the issuer's ability to tax as a rule and are considered a safer means of investment by some investors.

Revenue munis differ from GOs in that local governments or revenue-generating public entities, such as water authorities, issue them. Investors in these bonds earn interest from revenue generated by the specific entity, such as the water provider, that backs the obligation.

Although GOs and revenue munis are alike in that they are both tax-exempt, they differ in important ways. GOs are backed by the taxing power of the government entity that issues them. Their objective is to raise revenues to cover the cost of expenses solely. Revenue bonds, on the other hand, earn income directly from the project or projects being funded and are supported alone by that said income.

Although they are often considered safe investments, municipal bonds do not come without risks. If you sell off munis before they mature, you will only be repaid their current value, which may be less than you originally paid.

If you would like more information on either type of municipal bond presented here, you can visit the Web site of the Securities Industry and Financial Markets Association at www.sifma.org/services/publications/pdf/An_Investors_Guide_to_Municipal_Bonds(2).pdf, where they offer several articles on municipal bonds.