PayPal money market fund yield falls to 5.10% as of 9/29/2007

Despite the chatter about the so-called "credit crunch" and "subprime crisis" and the potential risk of even money market funds, money market funds are still an extremely safe place to park cash.

The good news is that a number of money market fund yields are higher as their existing short-term commercial paper matures and rolls over into new commercial paper that is getting a higher yield since supposedly nobody wants any of this commercial paper, or so the story goes.

Note: In theory, money market fund and CD rates should go down after the Fed lowers its target rate, but not necessarily immediately nor in lockstep with the Fed. Even as the Fed lowers its rate the yield on short-term commercial paper could stay high or even rise further, helping to keep money market fund yields relatively high.

It is too soon to tell, but so far there has been no dramatic impact to money market fund yields as a result of the Fed rate cut, but the impact will take weeks if not months to play out as the fund poltfolios incrementally mature and roll over into lower-yield assets. Note, for example, that money market funds invest in a lot of CDs whose yield is fixed for the term of the CD regardless of what the Fed does. Finally, entities with less than very high credit ratings will continue to have to offer significantly above average yields to attract capital and money market funds are an important source of short-term capital for such entities.

Note: Some of the data here may have been collected before the Fed rate cut went into effect. The weekly T-bill auction occurred before the Fed rate change anncouncement. Let's see where rates are in two or three weeks.

Here are some recent money market mutual fund yields as of Saturday, September 29, 2007:

• iMoneyNet average taxable money market fund 7-day yield fell from 4.68% to 4.54%
• GMAC Bank Money Market account rate remains at 4.78% or APY of 4.90% (only $500 minimum for that rate)  -- Note: This is an FDIC-insured bank deposit account, not a money market fund 
• Vanguard Prime Money Market Fund (VMMXX) 7-day yield fell from 5.09% to 5.06%
• Vanguard Federal Money Market Fund (VMFXX) 7-day yield fell from 4.94% to 4.92%
• AARP Money Market Fund 7-day yield fell from 5.07% to 4.97%
• TIAA-CREF Money Market (TIRXX) 7-day yield fell from 4.99% to 4.79%
• PayPal Money Market Fund 7-day yield fell from 5.21% to 5.10%
• ShareBuilder money market fund (BDMXX) 7-day yield fell from 4.59% to 4.51%
• Fidelity Money Market Fund (SPRXX) 7-day yield fell from 5.15% to 5.12% ($25,000 minimum)
• Fidelity Cash Reserves money market fund (FDRXX) 7-day yield fell from 5.09% to 5.05%
• Fidelity Prime Reserves money market fund (FPRXX) 7-day yield fell from 4.59% to 4.56%
• Fidelity Municipal Money Market fund (FTEXX) 7-day yield rose from 3.39% to 3.42% or tax equivalent yield of 5.26% (up from 5.22%) for the 35% marginal tax bracket and 4.75% (up from 4.71%) for the 28% marginal tax bracket -- this is a very decent yield for "core cash" in a checking-style account
• Fidelity Tax-Free Money Market fund (FMOXX) 7-day yield rose from 3.36% to 3.40% or tax equivalent yield of 5.23% (up from 5.17%) for the 35% marginal tax bracket and 4.72% (up from 4.67%) for the 28% marginal tax bracket
• 4-week (1-month) T-bill investment rate fell from 4.01% to 3.33%
• 13-week (3-month) T-bill investment rate fell from 4.16% to 3.92%
• 26-week (6-month) T-bill investment rate fell from 4.29% to 4.15%
• Treasury I Bond composite earnings rate (semiannual compounded annually) for new I Bonds is 3.74% (down from 4.52%), with a fixed rate of 1.30% (down from 1.40%) and a semiannual inflation rate of 1.21% (down from 1.55%) -- updated May 1, 2007, next semiannual update on November 1, 2007
• ING Electric Orange checking account is at 3.50% APY for balances under $50,000 (FDIC insured)
• ING Orange CD 6-month APY is at 4.90%
• ING Orange CD 12-month APY is at 4.90%
• Bankrate.com highest 6-month CD APY fell from 5.55% to 5.41% (Countrywide Bank with $10,000 minimum)
• Bankrate.com highest 12-month CD APY fell from 5.65% to 5.50% (Countrywide Bank with $10,000 minimum)

Did you notice that I didn't list Netbank? That is because they were "closed" yesterday:

On September 28, 2007, NetBank, Alpharetta, GA was closed by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation (FDIC) was named Receiver. All insured depositors are now customers of ING Direct Bank, member FDIC. No advance notice is given to the public when a financial institution is closed.

The FDIC has assembled useful information regarding your relationship with this institution. Besides a checking account, you may have Certificates of Deposit, a business checking account, a Social Security direct deposit, and other relationships with the institution. The FDIC has compiled  information which should answer many of your questions.

Please select the link below to read more about this event:

FDIC Bank Closing Information for NetBank

Continue to NetBank.com

Oops. I wonder how many NetBank customers don't even know about this yet. If you had money in an FDIC-insured account and below the limit for FDIC you are safe. I do not know whether ING is required to maintain the interest rate on CDs that are "acquired" in such a situation. I suspect that they will, but I do not know for sure.

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.

Right now, Fidelity Cash Reserves (FDRXX) is my preferred parking place for the bulk of my cash. I do appreciate the higher yield I have been getting these past few weeks, which is probably due to higher yields on commercial paper. I know that I can get a better yield elsewhere, but the convenience, decent yield, and relative safety of Fidelity make this a very attracive parking place.

I am tempted to go after those juicy CD rates that are still available, but regretfully my financial and employment situation is not solid enough for me to reduce the liquidity of my rainy day fund.

DISCLAIMER: I am not an investment adviser, so my opinions and the data presented here should not be considered as advice for where to invest your money. You should examine this and other available data before deciding how to invest your money. And, seriously, past returns should not be construed as a guarantee or even an indication of future returns.

-- Jack Krupansky