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After HSBC has lowered their savings yield from 5.05% to 4.50%, I started searching for another method to grow my emergency fund. One place I stumbled upon was PayPal, which gives you a 5.21% yield as of this writing.
I started wondering why PayPal can give a higher yield than online savings account, so I logged into my PayPal account and found this on my login page.
7 day average yield as of 9/19/2007. Yield varies over time. Money market funds are neither insured nor guaranteed by the FDIC or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 USD per share, it is possible to lose money by investing in the Fund. Learn more about the Fund in the prospectus. The PayPal Money Market Fund is designed primarily as an automatic sweep investment for uninvested cash balances in PayPal customer accounts. Distributed by Funds Distributor, Inc. PayPal is not affiliated with Funds Distributor, Inc. or with Barclays Global Investors.
I guess there’s a little extra risk in getting the extra yield since money in the PayPal account is:
a) not FDIC insured (meaning that if PayPal were to go bankrupt, your money is gone.
b) There is a possibility that the money can have a negative yield (not likely but not impossible)
Although I will keep using my PayPal account (easy online payment, ebay purchases etc), I won’t be keeping much money in there since there is no reason to increase my risk when the benefit does not justify.
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{ 14 comments… read them below or add one }
I have the same thought regarding PayPal, but decided against using it as anything more than online payment service because of all the reasons you’ve mentioned.
I’ve also heard some horror stories about PayPal just denied access to some people’s account and money. But I think that’s just rumor because I have PayPal for years without any problem.
Pinyo: PayPal is extremely popular, especially within the blogging community and since it’s owned by eBay now, I’m not as worried about my money as long as I’m not trying to do something fishy. However, the bank is always safer.
Personally, I transfer funds out of there asap after receiving any amount.
Modern: Where do you transfer your money to?
I like the ease of Paypayl to receive any on-line payment, but I won’t keep my money there since I don’t feel safe for a non-FDIC association. : )
I keep the money I earned from my little side business in Paypal for the yield you mentioned. Money in Paypal is not particularly unsafe. It’s just like putting money in any money market mutual fund that is not FDIC insured. Do you feel safe if you put your money in Vanguard Premier Money Market fund? If so, there’s no reason to worry too much about Paypal just because it’s smaller.
Sun: You are right in that it’s almost like every other money market fund, but a company being smaller definitely makes it more riskier. I wouldn’t think Vanguard is going down anytime soon but who knows what a tech company will do, especially if the online eco-system were to change in a big way and paypal/ebay cannot adapt to the change.
I keep a small amount of money in PayPal from my side business also but I probably wouldn’t pour more money into it.
I agree with Sun. The PayPal Money Market Fund has very little to do with PayPal. It’s a money market mutual fund just like Vanguard’s. The fund is held by a trustee. It’s not an obligation of PayPal. It’s managed by Barclays, the company behind the popular iShares ETFs. Read the prospectus.
Finance Buff: I understand that the fund is not managed by PayPal but because it is directly tied to my paypal account, all the risk of having assets in PayPal goes along with it.
here’s a good list of places to keep your savings:
http://www.wealthbuildinglessons.com/2007/09/27/optimizing-your-savings/
oh, and check out http://paypalsucks.com
I did not know all that about paypal. Pretty interesting.
I used paypal, my dh doesn’t want to use the money market because of in non being insured. I use it for the online payments and making payments mostly ebay. Just keep what I need in there. I have had my account for 6 years. Had a problem someone somehow got use of my debit card and charged stuff to yahcass. I called pp immediately, while on hold with them yet another charged popped up, pp did take care of it though. I cancel the debit card immediately while on the phone. I really liked the card though for the cash back. oh well
Marcia: Yeah I looked into the debit card too and it seemed like a good option but then I figured it is just as easy to transfer the money from paypal to my checking account and use my normal debit card.
I’m glad they were able to refund the money though!