The risk-free rate of return is the interest rate an investor can expect to earn on an investment that carries zero risks. In practice, the risk-free rate is commonly considered to equal to the interest paid on a 3-month government Treasury bill, generally the safest investment an investor can make.

A risk-free rate is a theoretical number since technically all investments carry some form of risk, as explained here. Nonetheless, it is common practice to refer to the T-bill rate as the risk-free rate. While it is possible for the government to default on its securities, the probability of this happening is very low.