Buying municipal bonds through Fidelity

[ny10036]

I'm trying to purchase an individual municipal bond for the first time ever through Fidelity, but it is issuing a warning that is giving me serious doubts.

The bond I'm trying to purchase has these details

Code: Select all

Action: New Issue Order
Quantity: [        ]
           1 bond equals $1,000 face value. Municipal bonds must be purchased in increments of 5. 

I'm trying to buy 5 since that's the minimum I can purchase. But right before the final purchase step, it gives me this warning:

Based on the Financial Profile information you provided for this account, you are attempting to purchase a security that Fidelity believes is unsuitable or for a quantity that exceeds what Fidelity believes is suitable.

Is there any reason for Fidelity to believe that I'm unfit to own this? Or that I'm unable to pay $5,000?

Am I making a mistake somewhere and actually buying $500,000 in bonds on margin?

[FellsGuy]

I'm guessing it is because you are buying the bonds from a retirement account so the tax free aspect isn't to your advantage?

[ny10036]

I'm guessing it is because you are buying the bonds from a retirement account so the tax free aspect isn't to your advantage?

I'm not, but maybe my account type does have something to do with it. It's a 'cash account' which has an account number that starts with Z. Still, why would this be a concern to Fidelity? I've purchased Treasuries in this account with no such notices.

[Scouter_Phil]

If memory serves me correctly, when you open an account on line at Fidelity, it asks you what your investment goals are. If you purchase something outside of those goals, you'll get the warning you saw.

[ny10036]

If memory serves me correctly, when you open an account on line at Fidelity, it asks you what your investment goals are. If you purchase something outside of those goals, you'll get the warning you saw.

Maybe that's the case. As long as I'm not misunderstanding something about the UI and buying more than I have cash for, guess I'm good to go.

[FellsGuy]

I'm guessing it is because you are buying the bonds from a retirement account so the tax free aspect isn't to your advantage?

I'm not, but maybe my account type does have something to do with it. It's a 'cash account' which has an account number that starts with Z. Still, why would this be a concern to Fidelity? I've purchased Treasuries in this account with no such notices.

Give their private client services a call and see if maybe there is some funny setting on your account, I doubt they are trying to keep you from buying munis and 1=1000 sounds right to me so I dont think youre about to buy $5MM on margin haha

[Mr. Potter]

I’ve bought just 2 individual muni bonds through Fidelity and already wish I hadn’t. Anyhow the search screen tells you everything you need to know including the number of bonds available and the minimum number of bonds you have to purchase, the lowest number I’ve seen is 5 for a total of $5,00 so that would be my guess.

[JazzTime]

I've purchased individual muni-bonds on Fidelity many times and never had an issue with it. That was several years back. I haven't tried recently.

I would simply call Fidelity and when the prompt asks what you are calling about, just say "I'm trying to purchase municipal bonds." That should get you to a rep that can help you. If not, you can ask for someone at their bond desk. I find Fido reps generally very helpful and they will even walk you through the process while on the phone.

Sometimes, the website does put up mysterious warnings that give you pause. Best to understand what it's all about before pulling the trigger, just so you are comfortable with the process.

[TBillT]

Full speed ahead, darn the torpedoes.
I had 4% munis in my Fido taxable account for a quite a while but they matured after 10-12 years.
It is getting interesting again now. I hope I can get excited again to buy more bonds.

[Mr. Potter]

It is getting interesting again now. I hope I can get excited again to buy more bonds.

Ok, you made me look. In my state of Minnesota there are several munis paying over 3.67% (YTC) and when you figure in the no state and federal tax this would return and equivalent of around 5.1% . One year CD’s are around 5.2% so you are absolutely correct it’s getting interesting, I actually love those boring muni-bonds and the tax free interest.

[Gigihsu]

Based on the Financial Profile information you provided for this account, you are attempting to purchase a security that Fidelity believes is unsuitable or for a quantity that exceeds what Fidelity believes is suitable.

It happened to us once. The issue at that time was that we were buying a one-year muni issued by a city. Although the city usually had good credit ratings of their long term bonds, somehow the very short term ones were not rated. Therefore, the one-year muni had neither Moody's or S&P ratings. It was considered riskier, thus the warning.