Saturday, October 14, 2006

PayPal money market fund yield falls from 5.05% to 5.02%

Here are some recent money market mutual fund yields:

  • iMoneyNet average taxable money market fund 7-day yield remains at 4.72%
  • PayPal money market fund 7-day yield fell from 5.05% to 5.02%
  • ShareBuilder money market fund (BDMXX) 7-day yield remains at 4.44%
  • Fidelity Money Market Fund (SPRXX) 7-day yield fell from 5.01% to 5.00% ($25,000 minimum, or $50,000 minimum to waive the $2 checkwriting fee)
  • Fidelity Cash Reserves money market fund (FDRXX) 7-day yield fell from 4.98 to 4.97%
  • Fidelity Prime Reserves money market fund (FPRXX) 7-day yield fell from 4.46% to 4.45%
  • Fidelity Municipal Money Market fund (FTEXX) 7-day yield fell from 3.24% to 3.08% or tax equivalent yield of 4.74% (down from 4.98%) for the 35% marginal tax bracket and 4.28% (down from 4.50%) for the 28% marginal tax bracket
  • Fidelity Tax-Free Money Market fund (FMOXX) 7-day yield at 3.01% or tax equivalent yield of 4.63% (down from 4.95%) for the 35% marginal tax bracket and 4.18% (down from 4.47%) for the 28% marginal tax bracket
  • 28-day (1-month) T-bill investment rate rose from 4.68% to 4.87%
  • 91-day (3-month) T-bill investment rate fell from 4.89% to 4.98%
  • 182-day (6-month) T-bill investment rate rose from 5.01% to 5.08%

T-bill yields are rising again, suggesting that much of the mass exodus from commodities is over and that people are starting to redeploy their "cash" out of T-bills.

From two weeks ago: I did finally get around to calling Fidelity again, but had to talk to two people to get even a vague answer. It does seem that cash deposited in a Fidelity account will earn the FCASH rate, which was 3.17% (taxable) when I called on Thursday, September 29, 2006. But you can easily transfer that money online into FDRXX or FTEXX or whatever at any time (by doing a trade or a "buy"), but there is no automatic sweep feature. They will automatically "sell" from your money market fund if checks or debits hit your account for more than your FCASH money, but they say they would prefer that you transfer the money back to FCASH yourself (a "sell") since they only do this as a "courtesy". You need $2,500 to get checkwriting for the account and $5,000 to get a debit card, and those minimums are for that specific brokerage account, regardless of the asset value you have in other Fidelity accounts such as your 401(k). Grrrrr... My employee stock purchase plan will make its first purchase in the coming days since today is the end of the quarter, which will give me enough asset value in the brokerage account to get checkwriting, but I'll have to wait another quarter to get the debit card. Then, I may switch my payroll direct deposit to this Fidelity brokerage account and use it as my main "bank" account since I'll earn at least the FCASH interest rate even for money that stays in the account only for a week or two before flowing out to pay normal monthly expenses.

I transferred a small amount of cash from my bank account to my Fidelity brokerage account and tried to "buy" the Fidelity Cash Reserves mutual fund (FDRXX) to get that 4.97% yield, but was informed that there is a $2,500 minimum for that fund. For now, that cash will earn a 4.28% equivalent yield (at a 28% marginal federal income tax rate) in my "core" cash fund which is the Fidelity Municipal Money Market fund (FTEXX). Once I get that $2,500 minimum, I'll be able to "buy" more with a $250 minimum.

From last week: I have begun the process of shifting to the use of my Fidelity brokerage account as a "bank" account. Last week was the end of my first quarter in my company Employee Stock Purchase Plan, so a small pile of Microsoft (MSFT) stock (purchased at a 10% discount) appeared in the associated brokerage account at Fidelity. It was enough to put me over the $2,500 checkwriting minimum, so I submitted the check signature form to request checks. I still have a ways to go before I have $5,000 in assets to qualify for the debit card. I'm not going to shift my payroll direct deposit until I have that debit card to use in ATMs or as a charge card. I did initiate a small transfer from my bank (Wells Fargo) to verify that link was working. It took two days for the money to be fully credited to my Fidelity account. I don't know why they take an extra day other than to steal that one day of float from you. I also switched my core cash fund from FCASH to Fidelity Municipal Money Market fund (FTEXX). In the 28% margin income tax bracket the 3.24% 7-day yield is equivalent to 4.50% taxable. That's far short of the 4.98% yield for Fidelity Cash Reserves (FDRXX), but better than the 3.17% FCASH yield (week before last) and not bad for the cash that will flow in and out of my account on a bi-weekly basis once I switch my payroll direct deposit. It is annoying that you can't switch your core cash selection directly online, but at least you can use the instant messenging chat feature to "talk" to a rep online to do it.

Updated: Some short-term CDs from brokerage firms are also looking attractive right now. I see that Charles Schwab has a 3-month CD yielding 5.19% APY. I don't know the details and haven't looked into it myself, but it may be worth checking out. Their 6-month CD has a 5.21% APY and the 1-year CD has a 5.10% APY. Rates are going to fluctuate wildly over the coming year, but a CD rate is locked in for the term of the CD. Note: CDs are quoted as a compounded yield which would be equivalent to a somewhat lower non-compounded annualized rate that you might get on a money market fund or Treasury.

No change: PayPal continues to be 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."

Right now, 28-day T-bills don't feel as attractive for cash that you won't need for a month, since new issues are yielding somewhat 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 are only assured of getting your full principle if your Treasury security is held until maturity.

-- Jack Krupansky


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