Should I put my money into mutual funds or into a Tax Free Bond?

I had my tax appointment and one thing my wife and I did this whole last year as we didn't know what to do with our savings was to each month buy a 3month CD, and as it matured we would roll it over into another one. I had my tax appointment and she mentioned I should stop doing this as it is adding to my income and I'm paying taxes on it, and that I should do mutual funds or a tax free bond instead. She is booked until after April 15th and I don't want to wait. Can anyone point me in the right direction? What are the advantages of a tax free bond over doing mutual funds? What makes more, and what is safer? My work 401k is through Mercer if that matters, or can I just do these through Scottrade? Any suggestions would be much appreciated to point me in the right direction.
Thanks in advance!*

I'm 29, my wife 27. I am not sure what bracket it is but I make about $200k and my 401k is maxed out, and my wife is a housewife. She has a 401k still but nothing new going into it as she is not currently working. No specific time frame on retreiving the savings except possible in a year or so if we move and I need it. From what you guys have mentioned so far is I wonder if my tax lady is good enough to visit again for this advice. She said she's a CPA and a lot of experience with investing advice for upper-income individuals.

Mutual funds also have tax implications, unless you are putting that money into a retirement vehicle, where it becomes tax deferred. It all depends on what your appetite is for risk, yield, and what your tax bracket is, too. You didn't state if your wife also has a 401K through work. So, you need to talk to a professional. If you waited this long to decide what to do, take the time to see a professional and get the right advice. No one can tell you what to do on this forum, they don't know enough about your personal circumstances. In order to educate yourself about what might work well for you, go on Yahoo Finance, and select personal finance. There, you can start your research yourself. Other websites that may help you include www.bloomberg.com, and the Scottrade website you referenced. There is a great deal of information on mutual funds, stocks, ETF's and bonds. But, you need to put the time in to study it. Do that before you commit a penny. Rush into something you don't understand, and I can guarantee you will regret it later.

I read your additional information and warn you NOT to allow your CPA to put you into investments. I let one do that, he made plenty of money on commissions/fees but didn't give me any alternatives to what he peddles--he spent my money in the least efficient manner possible, because he benefited personally from it. I have since learned that no one cares about your money as much as you do. Bonds can be risky, too. No doubt you are aware about the current credit crunch and that bond investors have lost much $. And why didn't your CPA advise you to open a Roth IRA? That is paid with after-tax dollars. You can certainly do something for your wife, even though she is at home. There are special rules for spouses that don't earn an income for Roth IRA's. I don't know the specifics-that's why you need an expert who does.
Really, if I were your age and starting an investment program, I'd go to Schwab, they have a lot of free classes and training. You can find out everything you want to know, before committing a penny. If your CPA is going to make money by putting you into an investment, you have to question her motives for steering you to one particular investment over another.
Ask your CPA if she holds the NASD series 7 and 63 licenses. If she does, you can be sure she is thinking of her own Tax Return before yours!

The ONLY reason to even consider tax-free bonds is if you already make enough money that the AMT (alternative minimum tax) kicks in... If your joint income is less than $415,000 for 2007, you probably don't need to fuss with "tax-free bonds", you're better off taking regular investment options (after you have maxxed out your 401(k)'s, IRA's & Roth IRA's)...

Well you make too much money to contribute to a ROTH IRA since your income is about $200,000 / yr so one of the previous answerers is not correct about that. You are in a very high tax bracket right now so any profits you make from investing are being taxed at the highest possible bracket. This is not good for your dividends. Tax free bonds will of course be tax free so if you don't want to loose your profits through taxes then you should buy them. The only reason I see that you should buy other taxable mutual funds is if you make such a high rate of return on them that it would be more than if you had put them into lower return tax-free bonds.

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Municipal bond earnings are federally tax-free and sometimes also free of state income tax. They generally earn less than taxable bonds but you also get the tax advantage. The higher your tax bracket, the greater the advantage. It makes no sense, however, to own them within a retirement account.