Now, remember that muni bond funds do carry more risk to principal than money market funds or bank accounts. However, that risk is fairly small, especially if you approach these as "buy and hold" investments. For example, Vanguard Intermediate-Term Tax Exempt Fund's (MUTF: VWITX) worst calendar-year share-price performance this century was -4.6% in 2013; its best was +6.1% in 2009. Over time, the ups and downs tend to cancel out, leaving you with the better-than-money-market income.

Municipal Bonds Are Good Income Investments