TAX EXEMPT BONDS

Hello everyone...
Our Treasurer wants to invest our reserve funds in a tax exempt bond. Everything that I can find on this says that you have to commit the money for a long period of time and that there may be risk with the funds. Does anyone have information about that? What do you all do with your reserve funds?
Thanks

Our HOA's written investment policy places safety of principal as the highest priority for our reserve funds. Unless a bond is held to maturity, there is always a risk to principal (e.g. if the general level of interest rates rises the price of the bond will fall). If you need to sell the bond when the price is down to pay for replacement of common property the association will lose money.

Beyond that consideration why would you be considering tax exempt bonds? The association only pays taxes on investment earnings so the tax burden is likely quite low. In that case the after tax yield on a tax free bond is going to be lower than on a comparable maturity taxable bond.

We invest reserves only in FDIC insured bank money market accounts, FDIC insured CD's or US Treasury Notes held to maturity.