PayPal money market fund yield up 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 rose from 5.02% to 5.03%
• ShareBuilder money market fund (BDMXX) 7-day yield fell from 4.45% to 4.44%
• Fidelity Money Market Fund (SPRXX) 7-day yield rose from 5.00% to 5.01%
• Fidelity Cash Reserves money market fund (FDRXX) 7-day yield was unchanged at 4.96%
• Fidelity Prime Reserves money market fund (FPRXX) 7-day yield rose from 4.45% to 4.46%
• Fidelity Federal Municipal Money Market Fund (FTEXX) 7-day yield rose from 3.07% to 3.26% or tax equivalent yield of 5.02% (up from 4.72%) for the 35% marginal tax bracket and 4.53% (up from 4.26%) for the 28% marginal tax bracket
• 28-day (1-month) T-bill investment rate fell from 4.76% to 4.72%
• 91-day (3-month) T-bill investment rate fell from 4.95% to 4.94%
• 182-day (6-month) T-bill investment rate rose from 5.13% to 5.12%

T-bill yields have been falling over the past month, curiously in-sync with the fall in commodities, suggesting that people have been shifting from commodities to cash in the form of short-term treasuries. I had been arguing for several months that commodities seemed a risky bet compared to super-safe 5% T-bills, so maybe a few other people noticed the same risk and opportunity. But now that a huge part of the hot money in commodities has shifted, maybe T-bills will rise again as traders and short-term speculators opportunistically resume playing commodities again. I would also note that the yield on the 28-day T-bill is significantly lower than the yield on the 91-day T-bill, suggesting that people shifted into T-bills only as a very short-term move, with the intention of moving back out of the T-bills within a month.

The Fidelity Money Market (SPRXX) looks quite attractive, but has a $25,000 minimum, or a $50,000 minimum to waive the $2 checkwriting fee.

From three weeks ago: 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." In fact I just "deposited" some money in my PayPal account a few minutes ago.

Right now, 28-day T-bills don't feel as attractive for cash that you won't need for a month, since new issues (as contrasted to those they I currently hold) are yielding less than PayPal and Fidelity Cash Reserves.

Please note the disclaimer on Fidelity's web site:

Past performance is no guarantee of future results. Yield will vary.

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. Please realize that you may not get your full principle back if you attempt to cash out early for Treasury securities since you'll get the price on the open market, which is not guaranteed by the U.S. Treasury. You get your full principle only if your Treasury security is held until maturity.

-- Jack Krupansky