What Is an Assessment Bond?

An assessment bond is a type of municipal bond that can be issued by a local or state government. With this type of bond, the interest payments to the investors are made by collecting taxes from the individuals that will directly benefit from the improvements that were made. 

Investing in an assessment bond can be attractive to investors because it provides them with tax-free income. The money that is received in interest payments is not taxable on a federal level. As long as you are investing in an assessment bond in your own county or state, you will most likely not have to pay taxes on either level. This is especially attractive to investors that are in a higher income tax bracket. Even though the rates that are received by this type of bond are lower than traditional bonds, the tax savings often makes it a more attractive investment.

The funds that are collected by this type of bond are often used to provide some type of improvement for the local area. They might use these funds to improve road conditions in a particular city or build an additional facility for a local school.

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