Bonds provide a way to invest with less risk than stocks. The returns can be lower, but return of principle and a fixed interest rate are more likely, though not guaranteed.

Many bonds issued by states and municipalities are tax-exempt, which means that the interest on them is not subject to federal taxes, and in some cases, state taxes.

These bonds carry a lower interest rate, but the savings on taxes may justify purchasing a tax-exempt bond compared to one where interest is taxed.