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No investment is 100% risk-free. Even US Government Treasury Bonds have inflation risk and interest rate risk. Your principal in a money market fund is only risk-free if it is FDIC insured. You need to ask the bank that question. I don't think anyone has lost money in a money market fund so far, but that doesn't mean it couldn't happen going forward.
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I Bonds are risk-free since they are indexed to inflation and can be redeemed at any time (without having to trade on the open market). Yield is currently 4.8%, enough to beat savings / MM accounts despite the cashin penalty so long as you hold them at least 13 months; obviously you do much better than any MM after that point. Their dividends are also tax-deferred.
http://www.savingsbonds.gov/indiv/pr...nds_glance.htm