With tax-free money market funds paying well under 1% (Vanguard’s Tax-Exempt Money Market is currently paying around 0.61%),  it is hard to find a place to park cash if you are in a high tax braket.  You can still find high yield savings accounts that pay around 2%, but that interest will be fully taxable and you need to stay under the FDIC limits (remember they go back down to $100K at the end of the year) because it is often the banks that are stretching themsleves that offer the best rates.

Enter variable rate demand obligation municipal bonds (i.e., VRDO Muni Bonds).  These are long dated municipal bonds (typically 30 to 40 years) that have variable interest rates and, unlike auction rate secruties, they have a put option each time the interest rate resets which provides guaranteed liquidity that auction rate securities did not.

PowerShares created a VRDO ETF in November 2007 (PVI).  It has a 0.25% expense ratio, pays monthly dividends and is currently yielding in the 1.6% to 1.8% range.  Over the last year the share price has remained remarkably stable only varying a few cents above and below $25/share.  The one exception was on Oct 10, 2008 when intra day trading pushed the share price down a few dollars, but by market close it was back to $24.88 and by the close of the following day it was back to $24.97 and the day after that it was at $25.