Again, it depends on your stage in life (early in your career, retirement, etc.), your tax bracket and of course, your unique situation. First off, in order for municipal bonds to be "tax-free," you must purchase bonds from a municipality in your state of residence. Otherwise, they are taxable. Second, even though they are "tax-free," the interest rate on these bonds has been reduced to take the tax effects into account. Municipal bonds typically make the most sense with high net worth individuals, with a large amount of investment income and are in the 28% or higher tax bracket.