Saturday, April 28, 2007

PayPal money market fund yield remains at 5.04% as of 4/28/2007

Here are some recent money market mutual fund yields as of Saturday, April 28, 2007:

  • iMoneyNet average taxable money market fund 7-day yield fell from 4.76% to 4.73%
  • PayPal Money Market Fund 7-day yield remains at 5.04%
  • ShareBuilder money market fund (BDMXX) 7-day yield fell from 4.48% to 4.47%
  • Fidelity Money Market Fund (SPRXX) 7-day yield remains at 4.99% ($25,000 minimum)
  • Fidelity Cash Reserves money market fund (FDRXX) 7-day yield fell from 5.00% to 4.98%
  • 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 rose from 3.35% to 3.44% or tax equivalent yield of 5.29% (up from 5.15%) for the 35% marginal tax bracket and 4.78% (up from 4.65%) for the 28% marginal tax bracket -- this is probably close to the best rate you can get for "core cash" in a checking-style account
  • Fidelity Tax-Free Money Market fund (FMOXX) 7-day yield rose from 3.33% to 3.39% or tax equivalent yield of 5.22% (up from 5.12%) for the 35% marginal tax bracket and 4.71% (up from 4.62%) for the 28% marginal tax bracket
  • 4-week (1-month) T-bill investment rate fell from 4.94% to 4.92%
  • 13-week (3-month) T-bill investment rate fell from 5.01% to 4.98%
  • 26-week (6-month) T-bill investment rate fell from 5.07 to 5.04%
  • 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) -- based on the latest inflation reports (1.21% semiannual inflation rate) and assuming no change to the 1.40% fixed rate (no guarantee there, and it could raised), my preliminary and unofficial calculation shows that the new I Bond earnings rate will be 3.83%
  • Schwab Value Advantage Money Fund (SWVXX) 7-day yield at 4.90%
  • Schwab Investor Money Fund (SW2XX) 7-day yield at 4.72%
  • Charles Schwab 3-month CD APY remains at 5.00%
  • Charles Schwab 6-month CD APY rose from 5.06% to 5.11%
  • Charles Schwab 1-year CD APY remains at 5.10%
  • NetBank 6-month CD APY remains at 5.30%
  • NetBank 1-year CD APY fell from 5.30% 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 5.04% is equivalent to a bank APY of 5.16%. I just added some cash to my PayPal account last weekend.

4-week T-bills remain not so attractive for cash that you won't need for a month, since the new issue yield was below the yield of PayPal and even below 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.

Check for the availability of high-rate CDs (5.00% APY to 5.45% 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. And some of these banks may have been involved in the subprime lending mess, so you might want to avoid them out of principle even if your principal is protected by the FDIC. 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 for even three months. 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


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