If you’re looking for steady, predictable, and tax-free income, municipal bonds deserve a spot on your radar. Often called “munis,” these bonds are issued by states, cities, and local agencies to fund public projects while offering investors federal (and sometimes state) tax-free interest. That makes them especially attractive for high-income earners seeking reliable cash flow and capital preservation. Below are 10 of the best municipal bond investments and funds to consider for tax-free income, each offering a unique blend of stability, yield, and diversification.
1. Vanguard Tax-Exempt Bond ETF (VTEB)
The Vanguard Tax-Exempt Bond ETF (VTEB) is one of the most popular choices for broad municipal bond exposure. It invests in investment-grade municipal bonds across the United States, offering strong diversification and low expense ratios. With a focus on high credit quality, VTEB provides relatively stable tax-free income, making it ideal for conservative investors. Because it tracks a broad muni index, you’re not betting on one state or project. For long-term investors seeking dependable federal tax-free income with minimal fees, this ETF is a solid foundation in any income-focused portfolio.
2. iShares National Muni Bond ETF (MUB)
The iShares National Muni Bond ETF (MUB) is another heavyweight in the municipal bond ETF space. It holds a diversified portfolio of investment-grade municipal bonds from across the country, providing federally tax-free income. MUB is known for its liquidity and long track record, making it appealing for both new and experienced investors. Its broad diversification helps reduce risk tied to any single municipality. If you want exposure to high-quality municipal bonds with consistent performance and easy tradability, MUB is one of the top municipal bonds for tax-free income to consider.
3. SPDR Nuveen Bloomberg Municipal Bond ETF (TFI)
The SPDR Nuveen Bloomberg Municipal Bond ETF (TFI) offers diversified exposure to investment-grade municipal bonds while maintaining competitive expense ratios. Managed in partnership with Nuveen, a respected name in municipal investing, TFI emphasizes credit quality and risk management. It’s particularly attractive for investors seeking steady, federally tax-exempt income without concentrating risk in one region. TFI can serve as a core municipal bond holding in taxable brokerage accounts. If stability and professional management are priorities, this ETF stands out as a reliable income generator.
4. Vanguard High-Yield Tax-Exempt Fund (VWAHX)
For investors willing to accept slightly higher risk in exchange for potentially higher yields, the Vanguard High-Yield Tax-Exempt Fund (VWAHX) is worth considering. This actively managed mutual fund focuses on lower-rated municipal bonds, which often offer higher interest payments. While credit risk is somewhat elevated compared to investment-grade funds, Vanguard’s disciplined approach helps manage defaults. The result is potentially higher tax-free income. It’s best suited for investors comfortable with moderate risk who want to boost their municipal bond returns while maintaining federal tax advantages.
5. Nuveen AMT-Free Quality Municipal Income Fund (NEA)
The Nuveen AMT-Free Quality Municipal Income Fund (NEA) is a closed-end fund designed to provide high current income exempt from federal income tax and the Alternative Minimum Tax (AMT). NEA often uses leverage to enhance yields, which can increase income but also adds risk. Its portfolio typically includes long-duration, investment-grade municipal bonds. Because it trades like a stock, investors can sometimes purchase shares at a discount to net asset value. For income-focused investors seeking enhanced yields and tax efficiency, NEA offers compelling potential.
6. BlackRock MuniYield Quality Fund (MQY)
BlackRock’s MuniYield Quality Fund (MQY) is another closed-end fund targeting high-quality municipal bonds. Managed by one of the world’s largest asset managers, MQY emphasizes credit quality while aiming to deliver attractive tax-free income. The fund may use leverage to enhance distributions, which can amplify both gains and losses. Investors seeking higher yields than traditional ETFs may find MQY appealing, particularly if purchased at a discount. For those comfortable with closed-end fund dynamics, MQY can provide strong, tax-advantaged cash flow.
7. Fidelity Municipal Income Fund (FHIGX)
The Fidelity Municipal Income Fund (FHIGX) focuses on delivering high current income exempt from federal income tax. Fidelity’s research-driven approach helps identify attractive municipal bonds while managing credit and interest rate risk. The fund typically holds a diversified mix of revenue and general obligation bonds across various states and sectors. It’s suitable for investors who prefer active management and a long-established asset manager. With competitive yields and strong oversight, FHIGX remains a dependable option for investors seeking consistent tax-free income.
8. Invesco AMT-Free Municipal Bond ETF (PZA)
The Invesco AMT-Free Municipal Bond ETF (PZA) focuses on municipal bonds that are exempt from the Alternative Minimum Tax, making it particularly attractive for higher-income investors. It tracks an index of investment-grade municipal bonds while maintaining reasonable fees. PZA offers diversification across states and sectors, reducing exposure to localized financial stress. Investors concerned about AMT implications often prefer this ETF to avoid unexpected tax liabilities. If tax efficiency is your top priority, PZA is a strategic addition to a municipal bond portfolio.
9. VanEck High Yield Muni ETF (HYD)
The VanEck High Yield Muni ETF (HYD) targets below-investment-grade municipal bonds, offering higher yields in exchange for increased credit risk. This ETF can enhance income potential, especially in a diversified portfolio. While defaults in municipal bonds are historically low, high-yield munis require careful consideration of economic conditions and issuer stability. HYD is best suited for investors seeking elevated tax-free income and willing to accept price volatility. As a satellite holding, it can complement more conservative municipal bond investments.
10. Schwab Municipal Bond ETF (SCHZM)*
The Schwab Municipal Bond ETF provides diversified exposure to U.S. municipal bonds with a focus on cost efficiency. Schwab is known for low expense ratios, making this ETF appealing for long-term income investors. It typically holds investment-grade bonds issued by states and local governments, helping maintain credit quality. Investors benefit from federal tax-free income while enjoying liquidity and transparency. For those building a tax-efficient income strategy within a brokerage account, Schwab’s municipal bond ETF is a practical, low-cost choice.
*Ticker symbols and fund availability may vary; always verify current fund details before investing.
Conclusion
Municipal bonds remain one of the most effective ways to generate tax-free income, especially for investors in higher tax brackets. Whether you prefer low-cost ETFs, actively managed mutual funds, or higher-yield closed-end funds, there’s a municipal bond investment that fits your risk tolerance and income goals. As always, consider your tax situation, time horizon, and overall asset allocation before investing. With the right mix of municipal bonds, you can create a steady, tax-efficient income stream that supports long-term financial stability.