Tuesday, October 30, 2007

PayPal As A High Yield Money Market Alternative?

Getting in the habit of maximizing the return of the money in your
savings account is great. There are tons of alternatives out there
so I recommend looking at different websites for suggestions.

1. PayPal offers very competitive rates and requires a small minimum
investment. For some reason the returns do not seem to match what
the websites claims. For example in September the average 7 day
yield on a PayPal account was never below 5.05% but it looks as if money
in a PayPal account earned 4.66%. In August the opposite happened
as the interest earned was much higher (above 5.5%). Has anyone
else noticed this? Current Rate for PayPal can be found at: PayPal Rate.

I noticed another suspicious action by PayPal towards the end of
September/start of October. For a period of almost two weeks PayPal did not post
a rate. One guess is that the money market rate fell drastically low and
PayPal decided it would not be in its best interest to post a low 7 day average
yield. I contacted PayPal by phone to inquire about this issue and the
representative simply told me that he "could not give me a rate." They
must have know something that I don't know...

Anyways, I have tried to contact PayPal numerous times via email, but they always
provide this silly example:

My Email To PayPal


I was just wondering what is your money market rate? I see that the
rate has not been updated in a few weeks. I’m interested in using Pay
Pal as a high yield money market account, but first I want to make sure
it is high yield!

-PayPal's Friendly Email Back .. and I quote "The dividend
received on a monthly basis through the Money Market Fund
is based on both the U.S. Dollar balance left in a PayPal Account and
the yield of the Fund.

If payments are sent or received, the amount of money that is in the
account will change, therefore changing the return.

· The yield of the fund varies over time
· The rate shown on the site reflects a 7-day average annual yield
as of a certain date

Dividend Rate(Annual Rate=1.50%/365)=0.000041096
Calculation for one day of dividends:
$1,000 * 0.000041096=$0.041096
· The dividends are then totaled at the end of the month and the
amount is distributedIt is my pleasure to assist you. Thank you for choosing



Job Offer Time:

Ann must have an easy job sending the same email out to everyone!
Does anyone know how I can apply for this job at PayPal?

I would not recommend using PayPal if you ever need help with Banking. They have the truly awful customer service and seem to be rather deceptive despite the higher floating rate.

Anyways, you need to be careful about putting your money in a uninsured money
market account these days. Of course I don't know anyone who has heard of a money marketing losing money, but I am growing alarmed at the SIV (special investment vehicles, and not cars by the way) risks that are freezing up the commercial paper market. Citigroup is in great stress and this could easily spillover. Investors & Savers, I urge you to look at the allocation the money managers in your uninsured money market accounts have and proceed with caution.

To Conclude: PayPal is not your Pal for savings.

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