In the current low interest rate regime, tax-free bonds traded on the exchanges look attractive for investors in the higher tax brackets. Issued by state-run infrastructure finance companies (hence enjoying capital safety), a few series are traded with higher liquidity and offer better post-tax returns. Since the interest paid by tax-free bonds are exempt from income tax, the current yields of 4.4-4.7 percent translate to 7.8-8.2 percent of pre-tax yields for investors in the 43 percent bracket. For investors in higher income-tax brackets, this is a better option than bank fixed deposits (FD). Currently, public and private sector banks offer a 6.2-7 per cent pre-tax interest rate for five-year FDs.