To determine which bond is a better investment looking only at the coupons, take the rate on the municipal (let's us 6% for the illustration) and divide the coupon by 1 minus your tax rate (28%) or .72. If the corporate bond is paying more than 6 divided by .72, then the corporate is the better investment.
HOWEVER, the comparison is no longer valid if 1). the bonds have different maturity dates 2.) the bonds are of different ratings (AA versus BAA-1). If there is ANY difference in any factor, your calculation will not change, but the answer can vary enough to make the comparison worthless. This is why you should always use a professional when buying fixed income securities.
WalletHub Answers is a free service that helps consumers access financial information. Information on WalletHub Answers is provided “as is” and should not be considered financial, legal or investment advice. WalletHub is not a financial advisor, law firm, “lawyer referral service,” or a substitute for a financial advisor, attorney, or law firm. You may want to hire a professional before making any decision. WalletHub does not endorse any particular contributors and cannot guarantee the quality or reliability of any information posted. The helpfulness of a financial advisor's answer is not indicative of future advisor performance.
WalletHub members have a wealth of knowledge to share, and we encourage everyone to do so while respecting our content guidelines. Please keep in mind that editorial and user-generated content on this page is not reviewed or otherwise endorsed by any financial institution. In addition, it is not a financial institution’s responsibility to ensure all posts and questions are answered.
Ad Disclosure: Certain offers that appear on this site originate from paying advertisers, and this will be noted on an offer’s details page using the designation "Sponsored", where applicable. Advertising may impact how and where products appear on this site (including, for example, the order in which they appear). At WalletHub we try to present a wide array of offers, but our offers do not represent all financial services companies or products.