PayPal money market fund yield remains at 5.05% as of 4/7/2007

[Note: Since I missed last week's post, I am mostly comparing to numbers from two weeks ago, except where the numbers from last week are still readily available.]

Here are some recent money market mutual fund yields as of Saturday, April 7, 2007:

• iMoneyNet average taxable money market fund 7-day yield rose from 4.76% to 4.77%
• PayPal Money Market Fund 7-day yield remains at 5.05%
• ShareBuilder money market fund (BDMXX) 7-day yield remains at 4.48%
• Fidelity Money Market Fund (SPRXX) 7-day yield remains at 5.00% ($25,000 minimum)
• Fidelity Cash Reserves money market fund (FDRXX) 7-day yield remains at 4.98%
• 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 3.28% or tax equivalent yield of 5.08% (up from 5.06%) for the 35% marginal tax bracket and 4.58% (up from 4.57%) for the 28% marginal tax bracket
• Fidelity Tax-Free Money Market fund (FMOXX) 7-day yield rose from 3.24% to 3.25% or tax equivalent yield of 5.02% (up from 4.98%) for the 35% marginal tax bracket and 4.53% (up from 4.50%) for the 28% marginal tax bracket
• 4-week (1-month) T-bill investment rate fell from 5.24% to 5.17%
• 13-week (3-month) T-bill investment rate fell from 5.07% to 5.06%
• 26-week (6-month) T-bill investment rate remains at 5.08%
• 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 5.05% to 4.93%
• Charles Schwab 6-month CD APY remains at 5.08%
• Charles Schwab 1-year CD APY remains at 5.00%
• NetBank 6-month CD APY fell from 5.40% to 5.25%
• NetBank 1-year CD APY fell from 5.35% to 5.20%

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." I did that this past week. The PayPal 7-day yield of 5.05% is equivalent to a bank APY of 5.17%.

4-week T-bills remain very attractive for cash that you won't need for a month, since the new issue yield was well above 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. Mine will roll again this coming week; I fully expect that I won't get anywhere near what I got last month (5.27%); something in the range of 4.85% to 5.20% is likely.

Check Bankrate.com for the availability of high-rate CDs (5.00% APY to 5.50% APY for 6-month). Alas, there are frequently quite a few caveats, strings, restrictions, requirements, minimums, "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 May or June.

I continue to see an introductory teaser from HSBC Direct Online Savings that promises "New Money Earns 6.00% APY* Through 04/30/07." Hmmm... and then what does it earn? Read the fine print and the answer is: "will earn an interest rate of 5.84% and yield 6.00% APY ... until April 30, 2007 ... it then earns an interest rate of 4.94% and yield 5.05% APY after that date." Until the 4.94% rate changes, which can happen at any time. HSBC is aggresively pursuing "new money" since they need to make up for huge losses on subprime credit. BIG NOTE: April 30 is not the deadline for putting "new money" into the account, but the end of the period during which your "new money" can earn 6.00% APY.

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