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Julia Wilkinson AuctionBytes Blog
Covering auctions, collectibles and marketplace selling.

Julia Wilkinson is Editor of the AuctionBytes Blog and is author of the "eBay Price Guide," "eBay Top 100 Simplified Tips and Tricks," "My Life at AOL" and numerous ebooks about selling online. You can also find her writing on Yard Salers.
Fri June 24 2011 21:10:53

PayPal Drops Interest-Bearing Accounts

By: Ina Steiner
Sponsored Link
PayPal is retiring its Money Market Fund next month. The Fund was launched primarily as an automatic sweep investment for uninvested cash balances in PayPal customer accounts.

A PayPal spokesperson confirmed the news sent via email to customers today, and provided us with the following statement:

"This week we informed PayPal Money Market Fund customers that the product is being retired on July 29, 2011. Due to market conditions, financial advantages of the Money Market Fund have diminished for our customers. No action is required for account holders and PayPal will automatically transfer any undisbursed earned dividends into customers' PayPal accounts within 7 business days after we close the fund. Customers can contact PayPal support if they require additional assistance."

The following bar chart shows the Fund's total returns for the calendar years indicated (2000 - 2009) and was obtained from the PayPal Money Market Fund prospectus available on the company's website.



PayPal's spokesperson declined to answer our other questions as to whether there was any other way for PayPal account holders to earn interest on their accounts, and whether PayPal would earn interest when it placed holds on sellers accounts.

What are holds? As PayPal explains, "When some sellers receive payments, we may hold the money in a pending balance for up to 21 days to help make sure that there are funds in the seller's account to cover potential refunds or claims. The funds may be released early if PayPal determines that the transaction has been fulfilled and customers are satisfied. While funds are pending, the money belongs to you but isn't available to spend or withdraw. If you're a PayPal Money Market Fund customer, you'll continue to earn interest on the total balance, even while the funds are held."

In March, eBay said it would expand holds: "For sellers who don't meet eBay's minimum selling standards and sellers with little or no selling history, funds from buyer payments will be unavailable for a period of time to ensure successful fulfillment."

A post from Smart Money magazine a few hours ago says that, as of Thursday, the fund held a collective $471 million and had returned 0.04% to investors so far this year, placing it among the top retail money funds. However, most PayPal users are not earning any interest on their accounts, PayPal is.

According to the magazine, users keep roughly $2.6 billion in interest-free accounts with PayPal, which pools the funds and places in FDIC-insured accounts to collect the interest. "With quick transfers from a linked bank account, there's little reason to keep much more in your zero-interest site account than you need for planned purchases, (Bankrate.com senior financial analyst Greg) McBride says."




Comments (38) | Permalink
Readers Comments

PayPal Drops Interest-Bearing Accounts   PayPal Drops Interest-Bearing Accounts
This user has validated their user name. by: Ming the Merciless
       
Fri Jun 24 23:32:10 2011
Another perfect example of ebay greed hurting their customers and a sign of a corporation that's circling the wagons.

"PayPal's spokesperson declined to answer our other questions as to whether there was any other way for PayPal account holders to earn interest on their accounts, and whether PayPal would earn interest when it placed holds on sellers accounts."

Of course she did. Answer to part A is "Yes, but we're not telling you or the rabble what it is and to Part B "Yes, we make millions off deposits and illegal holds."

Lies, secrets, and more lies. Just another day the world's most despicable corporation.

PayPal Drops Interest-Bearing Accounts   PayPal Drops Interest-Bearing Accounts
by: Tony DeLuca
       
Sat Jun 25 00:58:36 2011
I've re-read Ina's story twice now, but I'm still in disbelief. If I understand things correctly PayPal is going to stop paying account holders interest on THEIR money. Instead, PayPal will continue to invest the money but will keep the interest for THEMSELVES. If this is true PayPal has reached a new low in sleaziness.
PayPal Drops Interest-Bearing Accounts   PayPal Drops Interest-Bearing Accounts
by: Hear that?
       
Sat Jun 25 05:36:33 2011
Thats the sound of the ebay money vacuum sucking out every last penny from the dark recesses of sellers pockets.
PayPal Drops Interest-Bearing Accounts   PayPal Drops Interest-Bearing Accounts
This user has validated their user name. by: Philip Cohen
       Web Site
Sat Jun 25 05:48:01 2011
PayPal’s “Money Market Fund” accounts were only nominally separate accounts anyway. PreyPal will still invest the bulk of the funds in a user’s PreyPal “bank” account on the overnight money market, only now they will keep all the interest for themselves (if they weren’t before); let’s face it, eBay needs all the income it can get to hold up its sagging bottom line.

The only way for PreyPal users to get interest on their funds is to not leave funds with PreyPal. Indeed they should complain to their local A-G if PreyPal arbitrarily holds their funds because PreyPal, as only a licensed “money transmitter” is usually required to produce those funds on request by the payee within a statutorily proscribed time. Western Union cannot arbitrarily hang onto a payee’s funds; how is it PreyPal thinks that it is entitled to arbitrarily hold funds for an extended period of time? Just because they force users to agree to such an unreasonable condition? PreyPal is only licensed as a money transmitter; PreyPal is not a bank nor a provider of credit. Complain, complain, complain …

All a merchant needs to know about the clunky PayPal, at:
http://forums.auctionbytes.com/vbulletin/showthread.php?p=165263R>

Enron / eBay / PayPal / Donahoe: Dead Men Walking.
PayPal Drops Interest-Bearing Accounts   PayPal Drops Interest-Bearing Accounts
by: John
       
Sat Jun 25 06:00:43 2011
25 years ago government would not of allowed any of this to happen.... Today....They all sleep together,  and that interest bearing money is probably being kick-backed to them.
PayPal Drops Interest-Bearing Accounts   PayPal Drops Interest-Bearing Accounts
by: The one true Rich
       
Sat Jun 25 07:25:18 2011
NO!

I was hoping to invest (not really) the $8.20 they have locked up for 21 days in my PP account(an $5 book purchase which the buyer has left feedback on already). They still don't trust me with my own money---but I've only been onboard (I have no other payment choice)since the early 2000s.

Cheezoids.



PayPal Drops Interest-Bearing Accounts   PayPal Drops Interest-Bearing Accounts
This user has validated their user name. by: Anonymous Annie
       
Sat Jun 25 09:32:56 2011
Here's what I think... when the interest rates were higher, eBay was able to skim a percent or two off the top and keep it as their own and ''to pay the overhead costs''.

Now that the interest rates are so low, there's nothing to skim without dipping in to our funds.

So, they choose to keep it ALL, and the only way they can do that is by ''discontinuing'' the program. This only means that WE don't reap any rewards for keeping a balance that's under PayPal control.

Instead, PAYPAL will continue to play with whatever positive totals are in their control and PAYPAL will keep whatever interest possible.

THIS, dear friends, is why I have configured my PayPal account to AUTOMATICALLY ''SWEEP'' my funds *OUT* of my PayPal account and into my bank account EVERY DAY!!

As soon as the funds are IN my account, I have instructed PayPal to move them OUT of my account.

HOW? Where's this ''SWEEP'' feature you speak of, Annie?

It's a HIDDEN feature. It's NOT enabled by default... you must ASK FOR IT on the telephone!!!!

I think it's only available to ''business'' accounts (but I could be wrong)... in any case, the option to AUTOMATICALLY SWEEP funds does not appear in any of the PayPal online options until you telephone an actual person and specifically request it.

At that point this feature appears in the PayPal configuration options and you can enable it online.

NOTE: After you enable the ''sweep'' option, all funds THAT COME FROM YOUR CUSTOMERS will be moved to your checking account every day.

HOWEVER... if *YOU* ADD FUNDS (or transfer funds) to your own PayPal account, the ''sweep'' feature is automatically toggled off. ~~ This makes sense... if *you* add funds, then there's probably a reason that you want them in there... and it would be counterproductive for PayPal to immediately sweep them right back into your checking account. (No worries, though... you can always toggle it back on if needed.)

BY ENABLING THE AUTOMATIC SWEEP, you accomplish a couple of things

1) One less task to worry about

2) Your funds are available to you faster.

3) You deny PayPal the ability to keep YOUR money in their ''overnight slush fund''

A WORD OF CAUTION: If you must refund a customer, and your balance is zero... then PayPal will use your alternate payment source (usually an e-check from your banking account) and this could delay the refund process.

Maybe it's possible to tinker-around with your backup funding source for refunds... a credit card perhaps? I don't know, I haven't tried. I haven't needed to refund very often, so this hasn't been a big issue for me... but the possibility exists that it could be an issue for someone else.

PayPal Drops Interest-Bearing Accounts   PayPal Drops Interest-Bearing Accounts
This user has validated their user name. by: Anonymous Annie
       
Sat Jun 25 09:44:14 2011
================================================================
Ho
w
to Set Up PayPal to Automatically Transfer Payments to a Checking Account
================================================================R>
1.
Log onto your merchant PayPal account and find the ''Contact Us'' link at the bottom of the page. Click on that link, then select the ''Help by Phone'' option. That option will take you to a page that provides you with a customer-service phone number and other information, including a security PIN, that you will need to make the call.

2. Call the customer-service line and tell them that you are interested in enabling the Auto Sweep function on your PayPal merchant account. You will need to provide the customer-service representative with specifics on the account so he can research the option.

3. Allow the customer-service representative to look into Auto Sweep. If you are approved for Auto Sweep, PayPal will enable the program remotely. It will show up on your PayPal profile menu soon afterward.

4. Contact PayPal if you would like to disable Auto Sweep or have problems with the function.

-- full article at link below --

http://www.ehow.com/how_4598202_automatically-transfer-payme
nts-checking-account.html

(or...
http://bit.ly/cDOXSq)


SEE ALSO: http://www.google.com/search?q=paypal+auto+sweep

(Or... http://bit.ly/kbULSN)
PayPal Drops Interest-Bearing Accounts   PayPal Drops Interest-Bearing Accounts
by: Run, don't walk
       
Sat Jun 25 10:52:17 2011
This would be the time to get your money out and close accounts. If you can't do that, make sure to sweep your money out daily and only fund with credit card. No telling what is going on behind the scenes. Why no 'official announcement from PP? Why no answers? Even PP's famous forum 'helpers' aren't answering Q's.  

PS ther's a FireFox plugin/greasemonkey script called Paypal Instant Transfer Zapper to help keep people from being caught up in PP's deceptive funding options trap.
PayPal Drops Interest-Bearing Accounts   PayPal Drops Interest-Bearing Accounts
This user has validated their user name. by: Philip Cohen
       Web Site
Sat Jun 25 16:27:30 2011
@ Anonymous Annie,

“As soon as the funds are IN my account, I have instructed PayPal to move them OUT of my account.

“HOW? Where's this ''SWEEP'' feature you speak of, Annie?

“It's a HIDDEN feature. It's NOT enabled by default... you must ASK FOR IT on the telephone!!!!”

That would be right!

Notice though how with a bank credit card merchant account you don’t have to go hunting for such a feature, it happens as a matter of course, that any funds are credited to the merchant’s designated banking account every following day. Real banks recognise that merchants require their cash flow to be unimpeded; not so PreyPal. Refunds? Can’t remember giving any but as simply aggregators I imagine that Visa/MasterCard would simply pass any debit back to the merchant’s bank and in the unlikely event that there was no credit balance in the Visa/MasterCard account, again, the necessary funds would ultimately be drawn, by the bank, from the same designated banking account.

PreyPal has no formal relationship with the banking community other than with its own banker, in the  same way that any other merchant has with its banker. And therein lays the problem with PreyPal; all these problems exist with PreyPal because PreyPal is not part of the banking community; it is simply another “merchant”; PreyPal is not a licensed “bank”, nor is it a licensed provider of credit, but only a licensed “money transmitter” whose process is no more than a blood-sucking parasite riding on the back of the banks’ existing payments processing systems. Again, PreyPay has no direct relationship with all the participating retail banks, as does Visa/MasterCard; PreyPal’s only relationship with the banks’ system is via its relationship with its own banker, as any other merchant with a banks’ credit card merchant account has with its banker, only on a much larger scale.

Why the banks have allowed this clunky upstart to steal such a march on them is incomprehensible to me; still they will eventually get their online act together, in their usual professional manner, and then it will be bye, bye, PreyPal—except for its mandated use on whatever is by then left of the Donahoe-devastated eBay Marketplace and for those many unprofessional “merchants” who could not otherwise obtain a merchant account from their own banker.

All a merchant needs to know about the clunky PayPal, at:
http://forums.auctionbytes.com/vbulletin/showthread.php?p=165263

Enron / eBay / PayPal / Donahoe: Dead Men Walking.
PayPal Drops Interest-Bearing Accounts   PayPal Drops Interest-Bearing Accounts
This user has validated their user name. by: Anonymous Annie
       
Sat Jun 25 18:39:07 2011
@Philip...

I think that there's another reason that PP doesn't want it to be too easy for merchants to sweep funds into their checking accounts.

It's more profitable for PayPay whenever someone spends ''on account'' funds instead of PP having to process a credit card payment.

Why? Because PP charges THE SAME RATE regardless if the funds come from an ''on-account'' balance, or if they're processed as a credit card. ~ And when it's from someone's balance, then PP does not have to worry about paying ANYTHING to the CC companies.

Yet, they still charge everyone who spends on-account funds the SAME FEE!

So, it ends up being a DOUBLE-WIN for PP. Leave money in your PP account for more than 24 hours, and PP keeps all of the interest. Pay with funds already in your account and PP charges the merchant the FULL RATE for a transaction that didn't involve ANY credit card companies.

It's a racket.

''A little game from John Dona-hoo, the black for me the red for you - all you have to do is to keep your eyes on the little lady - ten gets you twenty, twenty gets you forty ... now here we go ... keep your eyes on the lady.''
PayPal Drops Interest-Bearing Accounts   PayPal Drops Interest-Bearing Accounts
This user has validated their user name. by: Philip Cohen
       
Sat Jun 25 19:37:15 2011
@ Annie,

You are right, of course, PreyPal charges their merchant users their credit card rate (~2.9%+30c) regardless of whether they source the funds as a very large credit card merchant themselves (at probably less that 0.9%) or by direct debit from a banking account at an even smaller nominal bank fee. To be precise, PreyPal is no more than a blood-sucking parasite riding on the back of the banks’ system and offering none of the safeguards that the banks offer.

Enron / eBay / PayPal / Donahoe: Dead Men Walking.
PayPal Drops Interest-Bearing Accounts   PayPal Drops Interest-Bearing Accounts
by: Rich
       
Sat Jun 25 22:42:07 2011
I don't think this is a big deal because the rate they've been paying is something like 0.4%.  I've been getting just a few cents a month in interest.  Not getting a few pennies a month is better than having to keep track of this miniscule interest and add it up at the end of the year for IRS purposes. Much better to do away with this but continue the cash back for useing card which amounts a decent amount. For me sometimes $15 or $20 a month and for some sellers more if they use it not only to ship but also to pay energy bill, cable bill and other bills
PayPal Drops Interest-Bearing Accounts   PayPal Drops Interest-Bearing Accounts
This user has validated their user name. by: Philip Cohen
       
Sat Jun 25 23:18:09 2011
Absolutely nothing is for free from a commercial entity, not even "cashback"; nothing is surer than you are more than paying for it somewhere.

Enron / eBay / PayPal / Donahoe: Dead Men Walking.
PayPal Drops Interest-Bearing Accounts   PayPal Drops Interest-Bearing Accounts
This user has validated their user name. by: Anonymous Annie
       
Sun Jun 26 08:04:59 2011
''Cash back'' is an accounting illusion. All the ''cash back'' that people receive from using their PP debit card is funded by the tiniest fraction of interest PP receives in interest from playing with customer's money.

The ''no big deal'' interest rate was indeed quite small. This is because it's what remains after PP skims off the top. Just take a look at what your savings account earns... it may also be small (reflecting the economic climate) but it's still far less than the .50% APY that my USAA savings account earns.

Even though PP ends this program, you can rest assured that they will continue to play-with customers' money in overnight markets and long-term investing.

This is just another big money-grab that most people will view as ''insignificant'' because it appears to have minimal effect on the mere pennies that their on-account funds were earning.

The thing is... PP is *COUNTING ON* that misconception to continue. They are *COUNTING ON* people remaining complacent with their funds and allowing their balance to grow. Even when it comes to Sellers who have a semi-regular once-a-week routine of withdrawing their funds... PP is *COUNTING ON* the ability to use those funds as they play the markets.

Ultimately, there can be no accounting for the unwise and lazy decisions of some PP customers. After all, it's *their* money and they are perfectly free to let PP play with it.

But when a customer's lazy decision is based on a lack of knowledge, misunderstandings, mis-information, deceit, misdirection, word-games, TOS-games, accounting trickery, as well as procedural obstacles (such as the hidden/non-existent auto-sweep feature) then the least we can do is to point out the FACTS and explain the OPTIONS... and people can then make informed decisions.
PayPal Drops Interest-Bearing Accounts   PayPal Drops Interest-Bearing Accounts
This user has validated their user name. by: Ming the Merciless
       
Sun Jun 26 18:10:23 2011
Ebay is one of those places where occasionally some pearls of wisdom and truth can be found among the swine who work(ed) there.

Take a minute to read Julia Wilkinson's interview of former ebafia dispute resolution director, Colin Rule, which can be read on the AB Homepage.

Therein we find the REAL reason ebafia instituted such their draconian, possibly illegal, and patently unfair dispute process:

"...disputes are an incredible loyalty opportunity. We compared hundreds of thousands of user accounts and discovered that users who filed disputes used PayPal more after the dispute than users who never filed a dispute in the first place. And that was regardless of outcome - even users who lost their dispute were more loyal."

BUYER LOYALTY TO PAYPAL at the expense of sellers and their merchandise!!

Scum of the earth, Colin Rule.



PayPal Drops Interest-Bearing Accounts   PayPal Drops Interest-Bearing Accounts
This user has validated their user name. by: Philip Cohen
       Web Site
Sun Jun 26 19:15:20 2011
Colin Rule: From eBay Conflicts to Global Peace Initiatives  

http://www.auctionbytes.com/cab/cab/abu/y211/m06/abu0289/s05

“Colin Rule: I learned a couple interesting lessons I didn't know before coming to eBay. First, buyers trade off convenience and outcome. We discovered buyers would rather lose a dispute quickly, say within a week, than win a dispute and have it take a month. The added headache of worrying about the matter is more painful to them than the injustice over losing $50-$75.”

Well, eBay’s diamond-seller-biased dispute algorithm will certainly be taking advantage of that perception.  

“Second, disputes are an incredible loyalty opportunity. We compared hundreds of thousands of user accounts and discovered that users who filed disputes used PayPal more after the dispute than users who never filed a dispute in the first place. And that was regardless of outcome - even users who lost their dispute were more loyal.”

“… regardless of outcome - even users who lost their dispute were more loyal.”? Please, pull the other leg. I knew there had to be a different algorithm for the non-diamond sellers that would favor buyers, and here it is!

If diamond_seller then seller_win else buyer_win

“Colin Rule: By volume, the number one [dispute] reason is buyer payment.”

So, what dispute resolution is involved here? If the buyer does not pay, they don’t get the goods. Simple.

And Mr Rule seems not to have answered the most interesting question about DSRs. Oh, well.

All a merchant needs to know about the clunky PayPal, at:
http://forums.auctionbytes.com/vbulletin/showthread.php?p=165263

Enron / eBay / PayPal / Donahoe: Dead Men Walking.
PayPal Drops Interest-Bearing Accounts   PayPal Drops Interest-Bearing Accounts
This user has validated their user name. by: Philip Cohen
       Web Site
Sun Jun 26 19:48:56 2011
A comparison of PreyPal Money Market Fund returns with ING Direct, at

http://www.depositaccounts.com/blog/2011/06/paypal-closing-i
ts-money-market-fund.html


"Unless you're using the money market fund as a temporary holding account for your trading, it makes more sense to have that money in a savings account or money market account instead. Not only will it be earning much more interest, it will also be covered by FDIC deposit insurance (NCUA if it's at a credit union). Note, money market funds are different than money market accounts."

So, as you can see from the table that as time passed PreyPal has been keeping more and more of the interest earned for themselves; now, they want to keep the lot. Times indeed must be getting desperate at eBay.

Enron / eBay / PayPal / Donahoe: Dead Men Walking.
PayPal Drops Interest-Bearing Accounts   PayPal Drops Interest-Bearing Accounts
This user has validated their user name. by: Anonymous Annie
       
Sun Jun 26 23:52:18 2011
@Philip observes: ''Times indeed must be getting desperate at eBay.''

For the sake of appearances and to make ends meet, they cannibalize their customers... they play hide-and-seek with assets income... deceit and lies... down is up... black is white... higher-fees are fee-reductions.

They're like the grand old-money family that lost everything in the stock market crash. To hide the fact that they have nothing, they sell off all their furniture... room by room... just to pay bills and keep the grounds looking nice. From the outside, everything looks normal... but from the inside, there's nothing but rot and decay. Empty rooms. A hollow shell. A house of cards ready to collapse on itself with the slightest bump or the gentlest breeze.
PayPal Drops Interest-Bearing Accounts   PayPal Drops Interest-Bearing Accounts
by: Dave
       
Mon Jun 27 10:17:49 2011
I don't understand the vitriol in these comments. Paypal is a business, not a charity. I have been with them since well before the Ebay purchase. Never had a bad experience as  buyer or seller. Obviously some folks have and complainers are more likely to be vocal. The rate of interest on my standing balances has always been higher than other bank options (credit unions are not banks). The current rates are a reflection of Quantitative Easing by the Federal Reserve and make it difficult to maintain a money market. Take a look at your 401k plan's money market option and you may see that they are charging you after expenses on your balance! Banks are no better, most consumers earn zero interest on their checking balances. Certainly the banks keep the difference in addition to scads of fees and restrictions on access. Why would I use my bank debit card to do the same thing I can with Paypal? The process is the same and I get 1.5% for the transaction. NO, PP does not earn money on the float here, just what the merchant is charged for a credit/debit transaction. If you just sit and complain, you will always be a victim of corporations. Try to use their system to even the field and you'll do fine. BTW, there is no such thing as a money market bank account. Money market funds are regulated by the SEC and have only had insurance since the crisis. Banks ''borrowed'' the term to create a demand account that sounds as if it will pay money market rates. It won't have anything but the same crappy rates their other accounts do.
If you think PP is bad, you should read a little about fractional reserve banking! TTFN
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