Thank you all for your responses. As far as the money that will be invested, I do not need to access it for roughly 2.5 to 3 years. Nonetheless, getting the money within a few business days would be preferable if something were to arise.
In terms of CDs, I have already gone that route in the past. I was lucky enough to find an institution that only charged a 60-day interest penalty to close any CD early, no matter the length. That has now risen to, if I am correct, 12 months interest for a 3-5 year CD. I have never found a promotional CD offer with the financial institutions that I currently am affiliated with, and I certainly would not like to add any more forms to my tax filings.
The money market account seems like a waste to be honest. VMMXX for example has an expense ratio of 0.17%, but in the last year has brought in 0.03% and in three years has brought in 0.14%. Additionally, the distribution is $0.00001. On a $10,000 investment, distribution would give me $1.20 in one year, with very minimal growth. Would you not lose money just having it sit in the account due to the expense ratio?
Concerning VBTLX, I'm not seeing how it has had any 6-8% dips over the last decade, besides possibly during last year. And even if that is correct, the fund was only down 2.15% for the last year. On $10,000, that would represent $215, which was probably recovered by the distributions paid out during 2013.
In the end, I understand the somewhat minor risk that comes with bonds. I understand that it is higher than a money market account. But even if VBTLX went down 2% over the next two years, dividends would almost certainly cover the loss.
I'm not discrediting what you all have said, but it still seems to me that using a fund like VBTLX would suffice for a savings account, in regards to its potential earning and relatively low risk to capital.