PayPal money market fund yield down to 5.03%

Here are some recent money market mutual fund yields:

• iMoneyNet average taxable money market fund 7-day yield was unchanged at 4.73%
• PayPal money market fund 7-day yield fell from 5.04% to 5.03%
• ShareBuilder money market fund (BDMXX) 7-day yield fell from 4.47% to 4.46%
• Fidelity Money Market Fund (SPRXX) 7-day yield fell from 5.02% to 4.99%
• Fidelity Cash Reserves money market fund (FDRXX) 7-day yield fell from 4.97% to 4.96%
• Fidelity Prime Reserves money market fund (FPRXX) 7-day yield fell from 4.47% to 4.45%
• Fidelity Federal Municipal Money Market Fund (FTEXX) 7-day yield fell from 3.20% to 3.06% or tax equivalent yield of 4.71% (down from 4.92%) for the 35% marginal tax bracket and 4.25% (down from 4.44%) for the 28% marginal tax bracket
• 28-day (1-month) T-bill investment rate fell from 5.19% to 4.88%
• 91-day (3-month) T-bill investment rate fell from 5.09% to 4.98%
• 182-day (6-month) T-bill investment rate fell from 5.17% to 5.12%

It was interesting that the yield for 28-day T-bills was so sharply lower. That means there was greater demand, possibly due to people pulling money out of the stock market. I wouldn't jump to the conclusion that a downwards trend is now established. It may also have simply been that a lot of people saw the great yields over the previous two weeks and swarmed to the 28-day T-bill, if only for a short-term play.

From last week: I need to look into what is going on at Fidelity. I hadn't noticed SPRXX before and they used to talk about FCASH, which I no longer see. Maybe they've seen the light and done the right thing, or maybe they've simply confused matters even worse. I'll have to investigate further how they are handling "core" cash these days for a taxable account (which I do not have, yet). Next year, when I have an extra $2,500 in free cash I will consider using a Fidelity account for payroll direct deposit and checks and bills. Since I pay most of my bills (including back taxes) through direct debit from my bank account, I'll have to check into whether Fidelity can handle that. They do have "Bill Pay", but that's different and not what I need.

PayPal is looking like a fairly interesting place to store cash for both relatively quick access and a well above average yield. There is no minimum for a PayPal account, no fee for a basic account, and it can be linked to your bank checking account for easy access. Right now I am using PayPal as a savings account, putting a little more money in whenever I get a chance and feel that my budget has some "spare change."

From last week: Right now, 28-day T-bills feel more attractive for cash that you won't need for a month, but there is no guarantee that the interest rate on the next weekly Treasury T-bill auction will be as attractive. The other catch on the T-bills (besides being locked up for 28 days) is that the unit of investment is $1,000, so you have to find some other place to put any fraction of $1,000, including any interest you might accrue.

As always, please note that cash placed in money market mutual funds is subject to the disclaimer that:

An investment in the Fund is not insured or guaranteed by the Federal Insurance Deposit Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.

In practice, that is not a problem at all, but it does incline me to spread my money around a bit.

T-bills and the cash in your bank checking account or bank CD are of course "protected", either by "the full faith and credit of the U.S. Treasury" or the FDIC.

-- Jack Krupansky