Saturday, January 27, 2007

PayPal money market fund yield holds steady at 5.02% as of 1/27/2007

Here are some recent money market mutual fund yields as of Saturday, January 27, 2007:

  • iMoneyNet average taxable money market fund 7-day yield remains at 4.73%
  • PayPal Money Market Fund 7-day yield remains at 5.02%
  • ShareBuilder money market fund (BDMXX) 7-day yield rose from 4.45% to 4.46%
  • Fidelity Money Market Fund (SPRXX) 7-day yield rose from 4.99% to 5.03% ($25,000 minimum)
  • 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 remains at 4.45%
  • Fidelity Municipal Money Market fund (FTEXX) 7-day yield rose from 3.17% to 3.26% or tax equivalent yield of 5.02% (up from 4.88%) for the 35% marginal tax bracket and 4.53% (up from 4.40%) for the 28% marginal tax bracket
  • Fidelity Tax-Free Money Market fund (FMOXX) 7-day yield rose from 3.10% to 3.21% or tax equivalent yield of 4.94% (up from 4.77%) for the 35% marginal tax bracket and 4.46% (up from 4.31%) for the 28% marginal tax bracket
  • 4-week (1-month) T-bill investment rate rose from 4.98% to 4.99%
  • 13-week (3-month) T-bill investment rate rose from 5.11% to 5.13%
  • 26-week (6-month) T-bill investment rate rose from 5.15% to 5.16%
  • 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 rose from 4.99% to 5.09%
  • Charles Schwab 6-month CD APY rose from 5.11% to 5.16%
  • Charles Schwab 1-year CD APY rose from 5.20% to 5.25%

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 5.02% is equivalent to a bank APY of 5.14%.

4-week T-bills are once again fairly attractive for cash that you won't need for a month, since the new issue yields fairly close to the yield of 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. Simply letting the T-bills automatically roll every four weeks will average out a lot of this volatility.

I would note that T-bill yields have been rising, implying that their prices are declining, as people find more interesting places to invest, including the rising stock market. The implication is that as people become more confident that the economy is stronger than they thought, more money will flow out of Treasuries and into stocks, causing Treasury yields to rise. In theory.

Check for the availability of high-rate CDs (5.00% APY to 5.47% APY for 6-month). Alas, there are frequently quite a few caveats, strings, restrictions, requirements, "introductory specials", and other gotchas, so read the fine print carefully. CDs work great for some people, but horribly for others. I have no CDs since I do not have any free cash that I can afford to lock up with restrictions. But, that said, I am considering putting at least a little free cash in short-term CDs (three-month, six-month, or maybe even one-year), around the middle of 2007, especially if the Fed raises interest rates by a quarter-point in the spring.

Please note the disclaimer on Fidelity's web site for mutual funds:

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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