No. of Recommendations: 2
"With the fairly high local tax rate here, would I be better off buying some sort of tax advantaged bond? Would anyone be so kind as to give me a quick overview about those guys? Does buying "munis" or "t-bills" or whatever-else-kind-of-bond even make sense if I'm only talking amounts around $500 a month?"

With anything short term, things change so fast that the best choice today may not be tomorrow (as with teaser rates). Unless there is some kind of DC specific muni money market, that probably isn't an option (you need more liquidity for an e-fund than muni-bonds). Short term t-bills or possibly a money market that gets interest from t-bills and gets you exempt from local taxes might work (I'm not sure if Vanguard's Federal Money Market is all or mostly exempt from local taxes, but worth checking).

Of course, even if you can get a good enough yield to beat the 4.32% or so you're getting after DC taxes, you have to decide if it's worth the hassle to bid on T-bills. .3% on $10,000 is $30, and I doubt you could do better than that as a difference, and more than $10,000 in a e-fund probably can go into something less liquid.

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