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."