Fidelity Money Market Fund yield falls to 5.09% as of 10/6/2007

This will be my final regular posting of money market fund information since I have decided to focus my money market investment on the Fidelity Money Market Fund (SPRXX). It does have a hefty $25,000 minimum to open (which I just barely reached only recently), but does usually pay a modestly higher yield than the Fidelity Cash Reserves fund (FDRXX) and most other money market funds. In fact, this week it even managed to come in at #1 in the iMoneyNet Top Prime Retail Money Funds* (as of 10/2/07) list. Of course, all of this is subject to change on a weekly if not daily basis, especially in an environment where the Federal Reserve is monkeying with interest rates and concerns about credit quality are adding significant volatility to interest rates in general. But for now, I am content to leave the bulk of my cash in the Fidelity Money Market Fund on auto-pilot for now. Sure, I'll leave smaller piles in other funds and accounts, including PayPal and T-bills, but I may in fact consolidate those piles into the big pile as well over time. Note: I would be doing the same, but with Fidelity Cash Reserves (FDRXX) if I wasn't able to meet the minimum opening requirement.

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Note: PayPal is acting up again and did not pay a dividend yield for September that was anywhere near the yield range they had been quoting all through the month. I earned an annualized simple yield of 4.65% which is a far cry from the 5.20% 7-day yield range I had seen published for PayPal for the entire month. I saw this problem in July as well and complained then, but PayPal has yet to acknowledge that there is a problem. OTOH, the dividend for August was effectively a 5.77% annualized yield, so the average over both August and September works out to a 5.14% annualized yield, which is quite reasonable. Maybe the only problem with PayPal is that the dividends are "lumpy." For now, I'll leave the modest pile of cash that I have in PayPal where it is since overall I have gotten a decent return. But, I will no longer actively highlight or promote PayPal since they have been a frustrating experience and may be suited only for those actively doing other business with PayPal or who are truly adventurous.

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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, not to mention whatever further changes the Federal Reserve makes to interest rates. 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.

Here are some recent money market mutual fund yields as of Saturday, October 6, 2007:

• iMoneyNet average taxable money market fund 7-day yield fell from 4.54% to 4.52%
• 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 5.06% to 5.05%
• Vanguard Federal Money Market Fund (VMFXX) 7-day yield fell from 4.92% to 4.91%
• AARP Money Market Fund 7-day yield rose from 4.97% to 4.99%
• TIAA-CREF Money Market (TIRXX) 7-day yield rose from 4.79% to 4.89%
• PayPal Money Market Fund 7-day yield rose from 5.10% to 5.21%
• ShareBuilder money market fund (BDMXX) 7-day yield fell from 4.51% to 4.49%
• Fidelity Money Market Fund (SPRXX) 7-day yield fell from 5.12% to 5.09% ($25,000 minimum)
• Fidelity Cash Reserves money market fund (FDRXX) 7-day yield remains at 5.05%
• Fidelity Prime Reserves money market fund (FPRXX) 7-day yield fell from 4.56% to 4.53%
• Fidelity Municipal Money Market fund (FTEXX) 7-day yield fell from 3.42% to 3.38% or tax equivalent yield of 5.20% (down from 5.26%) for the 35% marginal tax bracket and 4.69% (down from 4.75%) 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 fell from 3.40% to 3.37% or tax equivalent yield of 5.18% (down from 5.23%) for the 35% marginal tax bracket and 4.68% (down from 4.72%) for the 28% marginal tax bracket
• 4-week (1-month) T-bill investment rate rose from 3.33% to 3.58%
• 13-week (3-month) T-bill investment rate rose from 3.92% to 3.94%
• 26-week (6-month) T-bill investment rate remains at 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 remains at 3.50% APY for balances under $50,000 (FDIC insured)
• ING Orange CD 6-month APY remains at 4.90%
• ING Orange CD 12-month APY remains at 4.90%
• Bankrate.com highest 6-month CD APY remains at 5.41% (Countrywide Bank with $10,000 minimum)
• Bankrate.com highest 12-month CD APY remains at 5.50% (Countrywide Bank with $10,000 minimum)

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.

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