Calculate the taxable equivalent yield of municipal bonds. Compare tax-free and taxable investments.
Compare taxable vs tax-free bond yields.
The Tax Equivalent Yield Calculator helps you compare tax-free municipal bonds to taxable investments. A tax-free yield may be worth more than it appears once you account for your tax bracket.
Municipal bonds offer tax-exempt interest at the federal level (and often state level for in-state bonds). For investors in higher tax brackets, a seemingly lower muni yield can actually provide better after-tax returns than higher-yielding taxable bonds.
This shows what a taxable bond would need to yield to equal the muni's after-tax return.
3.5% muni yield in 32% tax bracket: TEY = 3.5% ÷ (1 - 0.32) = 5.15%. A taxable bond would need to yield 5.15% to match the muni's after-tax return!
| Muni Yield | 22% Bracket | 32% Bracket | 37% Bracket |
|---|---|---|---|
| 3.0% | 3.85% | 4.41% | 4.76% |
| 3.5% | 4.49% | 5.15% | 5.56% |
| 4.0% | 5.13% | 5.88% | 6.35% |
Related tools: Bond Calculator for yields and pricing, Income Tax Calculator to find your bracket, and Investment Calculator for portfolio planning.
TEY = Tax-Free Yield ÷ (1 - Tax Rate). For 3.5% muni yield in 32% bracket: TEY = 3.5 ÷ 0.68 = 5.15%. A taxable bond needs 5.15% to match.
Higher brackets benefit more. In 37% bracket, 4% muni = 6.35% taxable equivalent. In 12% bracket, same muni = only 4.55% taxable. Compare before buying.
Credit risk (rare defaults), interest rate risk, call risk (early redemption), and liquidity risk. Research bond ratings. AAA/AA rated munis are very safe.