Saturday, December 02, 2006

PayPal money market fund yield holds steady at 5.03% as of 12/2/2006

Here are some recent money market mutual fund yields as of Saturday, December 2, 2006:

  • iMoneyNet average taxable money market fund 7-day yield remains at 4.74%
  • PayPal Money Market Fund 7-day yield remains at 5.03%
  • ShareBuilder money market fund (BDMXX) 7-day yield remains at 4.45%
  • Fidelity Money Market Fund (SPRXX) 7-day remains at 4.99% ($25,000 minimum)
  • Fidelity Cash Reserves money market fund (FDRXX) 7-day fell from 4.96% to 4.95%
  • Fidelity Prime Reserves money market fund (FPRXX) 7-day yield rose from 4.45% to 4.46%
  • Fidelity Municipal Money Market fund (FTEXX) 7-day yield fell from 3.29% to 3.21% or tax equivalent yield of 4.94% (down from 5.06%) for the 35% marginal tax bracket and 4.46% (down from 4.57%) for the 28% marginal tax bracket
  • Fidelity Tax-Free Money Market fund (FMOXX) 7-day yield fell from 3.26% to 3.19% or tax equivalent yield of 4.91% (down from 5.03%) for the 35% marginal tax bracket and 4.43% (down from 4.54%) for the 28% marginal tax bracket
  • 4-week (1-month) T-bill investment rate rose from 5.25% to 5.26%
  • 13-week (3-month) T-bill investment rate fell from 5.07% to 5.04%
  • 26-week (6-month) T-bill investment rate fell from 5.14% to 5.13%
  • Treasury I Bond composite earnings rate (semiannual compounded annually) for new I Bonds is 4.52%, with a fixed rate of 1.40% and a semiannual inflation rate of 1.55% (updated November 1, 2006, next semiannual update on May 1, 2007)
  • Charles Schwab 3-month CD APY fell from 5.14% to 5.09%
  • Charles Schwab 6-month CD APY fell from 5.16% to 5.06%
  • Charles Schwab 1-year CD APY fell from 5.05% to 5.00%

Note: APY yield is worth somewhat less than the same 7-day yield. See my discussion and table for Comparing 7-day yield and APY.

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 or even your brokerage 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." The PayPal 7-day yield of 5.03% is equivalent to a bank APY of 5.15%.

4-week T-bills once again are rather attractive for cash that you won't need for a month, since new issues are now yielding more than PayPal and Fidelity Cash Reserves. But, this rate fluctuates significantly from week to week. The rate is locked in for four weeks once you buy the T-bill at the weekly auction, but you can't predict what rate you will get at the next auction since it is based on supply and demand.

The significant decline in yields on CDs at Schwab probably reflects a spike in demand as people seek to lock in good rates for a longer term in an expectation that the Fed will lower rates in the not-too-distant future. I don't believe that the Fed will lower rates, but other people have a different perspective.

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 and savings accounts or bank CDs 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. (or Treasury "calls" the security or issues an offer to repurchase).

-- Jack Krupansky

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