Government Bonds

• In the United States, holders of savings and Treasury bonds pay only federal taxes, with a few exceptions. Holders of savings bonds such as Series I and Series EE can redeem them tax-free if they use the proceeds to pay college tuition, according to Bankrate.com. These and other savings bonds do not pay interest periodically, but add it to the principal, which means deferred taxes until you cash the bond.
  
  

Municipal Bonds

• Municipal bonds are triple exempt, meaning that residents of the issuing authority's state don't pay federal, state or municipal taxes. The catch here, as the This Matter website points out, is that "munis," as they are known, pay lower rates than Treasury bonds.
  
  

Considerations

• Tax-exempt bonds pay less in interest than taxable corporate bonds. However, depending on your tax bracket, they can still be a better proposition. Also, as the Investing in Bonds website points out, the higher the yield, the higher the risk, which is another reason to consider investing in tax-exempt bonds.