Saturday, October 07, 2006

PayPal money market fund yield rises from 5.04% to 5.05%

Here are some recent money market mutual fund yields:

  • iMoneyNet average taxable money market fund 7-day yield fell from 4.73% to 4.72%
  • PayPal money market fund 7-day yield rose from 5.04% to 5.05%
  • ShareBuilder money market fund (BDMXX) 7-day yield rose from 4.43% to 4.44%
  • Fidelity Money Market Fund (SPRXX) 7-day yield fell from 5.02% to 5.01% ($25,000 minimum, or $50,000 minimum to waive the $2 checkwriting fee)
  • Fidelity Cash Reserves money market fund (FDRXX) 7-day yield rose from 4.97 to 4.98%
  • Fidelity Prime Reserves money market fund (FPRXX) 7-day yield was unchanged at 4.46%
  • Fidelity Municipal Money Market Fund (FTEXX) 7-day yield fell from 3.38% to 3.24% or tax equivalent yield of 4.98% (down from 5.20%) for the 35% marginal tax bracket and 4.50% (down from 4.69%) for the 28% marginal tax bracket
  • Fidelity Tax-Free Money Market Fund (FMOXX) 7-day yield at 3.22% or tax equivalent yield of 4.95% for the 35% marginal tax bracket and 4.47% for the 28% marginal tax bracket
  • 28-day (1-month) T-bill investment rate rose from 4.62% to 4.68%
  • 91-day (3-month) T-bill investment rate fell from 4.90% to 4.89%
  • 182-day (6-month) T-bill investment rate rose from 5.00% to 5.01%

From two weeks ago: 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.

From last week: 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 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.

From last week: Coincidentally, I had to call my old full-service broker, UBS (which was Paine Webber), that same day for an address change on an old IRA that has an inconvenient ownership of oil and gas limited partnerships from the late 80's and early 90's, and I asked them if they could do any better on the cash that the partnership kicks off every quarter. Currently, the standard interest rate in that UBS IRA is barely more than 1%. It turns out that they have a poorly-promoted "floater fund" which invests in reasonably safe short-term commercial loans (typically 90 days) and is currently paying about 6.1% and is "daily liquid" like a money market mutual fund. I am tempted to re-open a "resource management account" with them, but it won't make financial sense until I have more than $15,000 in cash (6% vs. 5% is a 1% difference and the annual fee is $150 which is 1% of $15,000).

I am still seriously considering a UBS Resource Management Account (RMA), despite the $150 fee. They do have a lot of interesting services, including ATM fee reimbursement. I am concerned about the potential for identity theft these days, so I plan to keep my assets distributed among multiple financial service providers. I can split my payroll direct deposit among multiple "banks", so I may use Fidelity for some of the bigger expenses and UBS for daily credit card use. UBS offers both an American Express and a Visa credit card. The benefit of the UBS Visa credit card is that you get up to a month of float and the charges are debited near the end of the month rather than the next day as with a traditional debit card such as offered by Fidelity. Financially, that may be moot since Fidelity will pay a significantly higher interest rate for cash sitting idle in the account. At least that's my current read. I still haven't made a decision yet and may wait until I get the Fidelity account fully operational with direct deposit and electronic transfers for paying bills online.

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 5.25% 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 5.26% APY and the 1-year CD has a 5.00% APY. Rates are going to fluctuate wildly over the coming year, but a CD rate is locked in for the term of the CD.

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 significantly 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


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