Sunday, July 16, 2006

PayPal money market yield up to 4.95%

The 7-day yield for cash kept in the PayPal money market fund is now up to 4.95% as of July 13, 2006. That compares quite favorably with the 28-day Treasury T-bill discount rate of 4.81% from last week and 4.54% in ShareBuilder or even the 4.88% 7-day yield in Fidelity Cash Reserves (FDRXX). And there are no minimums or crazy restrictions even for relatively small amounts of money.

PayPal is looking like a fairly interesting place to store cash for both relatively quick access and a well above average yield.

Another grumble about Fidelity: I just visited their web site and the graphic ad touts a 4.89% 7-day yield -- "as of 7/11/2006", but the yield has backed off to 4.88% "as of 7/14/2006". Yes, the ad does say "Click here for current rate", but why don't they simply show you the current rate in the ad itself. Duh! And the rate quoted by the ad need the following footnote (*):

* The performance data featured represents past performance, which is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. Yield and return will vary.
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.
Before investing, consider the fund's investment objectives, risks, charges and expenses. Contact Fidelity for a prospectus containing this information. Read it carefully.

The warning about your money market funds not being FDIC insured is worth contemplating. CDs can offer decent yields with FDIC protection, but only if you lock your funds in for an extended period of time with hefty early-withdrawal penalties. U.S. Treasury notes are an alternative to CDs. Although they have no fixed early-withdrawal penalty, you may take a "haircut" by selling on the open market where the bid may be significantly less than your principle.

-- Jack Krupansky


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