Many people do not see the advantages of bonds because in general the interest is taxed as ordinary income which can be up to 35%. This is more than twice the maximum for stock dividends which is 15%. Investors, however, can avoid paying federal taxes altogether on interest by buying municipal bonds. Additionally, if they buy them from in-state issuers, that is, local or state municipalities, they can avoid state and local taxes as well. For high income people the use of these type securities is a great tax planning tool.
