Municipal bond funds, as I said Sunday, are worth a close look. Many offer returns of around 6 percent. Since all or most of the interest is tax-free, that's like earning 8 percent or more on a taxable fund, depending on your tax bracket.
Most investors look for muni funds with high yields, or interest payments.
Municipal bonds don't usually pay as much as Treasury or corporate bonds. But muni yields are exempt from federal income tax, and they're usually exempt from state income tax, so long as the bond was issued in the investor's state. The higher your tax bracket, the more you benefit from a muni fund's tax exemption. So it's important to know how the yield on a muni bond or fund compares with the yield on a taxable bond or fund once the exemptions are taken into account. Start by subtracting your federal tax bracket from 100 percent.