Find one of those long lists of money market funds in tiny print in the WSJ that lists the currency rates. (or try Barron's, a very useful end of the week thing that comes out every Saturday). There are two kinds of risk in a money market fund. Default risk and interest rate risk. Interest rate risk is genrally low because maturieis are short, but note that some funds haver average maturies of 90 days and others are closer to 30 (therefore less interest rate risk). Default risk is the chance that the issuer of the commerical or govt paper which constitutes a fund goes belly up. This is rare but it can happen. I think most mm funds tend to stick to about 3% per issuer, so even here the risk would be moderate.
But you can get close to zero risk by choosing a money market fund which uses US govt paper. This in a sense is the ultimately logical a zero risk instrument since a dollar is basically a zero term, nominally non-interest bearing asset redeemable against govt debt held by the Fed. If govt debt goes belly up so will the dollars, so you won't be "protected" by having dollars in some other kind of place like a bank. The only way to protect against having dollars go belly up is to go long in some non-paper asset like gold, which constitutes yet another set of valuation risks.
As I have mentioned on this list, series EE bonds are competitive with money market rates and redeemable at any time once you get past the six-month "hold" period. You can buy 'em at a bank.
-- Gregory P. Nowell Associate Professor Department of Political Science, Milne 100 State University of New York 135 Western Ave. Albany, New York 12222
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