What financial product's interest is usually not subject to federal taxes?

The choice that indicates a financial product whose interest is usually not subject to federal taxes is revenue bonds. Revenue bonds are issued by governmental entities to finance income-producing projects, such as schools, highways, and hospitals. The critical aspect of revenue bonds is that the interest earned on them is often exempt from federal income taxes. This makes them an attractive investment for individuals in higher tax brackets, as they can yield tax-free income.

In contrast, corporate bonds typically generate interest that is subject to federal taxes, as these are issued by corporations and not exempt from federal taxation. Variable annuities can grow tax-deferred, but withdrawals and earnings are subject to taxes when accessed. Mutual funds distribute interest and capital gains that are taxable to the investors. Thus, the unique tax-exempt nature of revenue bond interest sets it apart from the other options listed.