PayPal Shutters Money Market Fund For Merchants

PayPal is shutting down its Money Market Fund, notifying participants that the fund will be closing as of July 29 of this year.

PayPal users could previously put the money they earned from PayPal transactions in a Money Market Fund to accrue interest. PayPal customers could choose have their free cash balances swept into the Fund in order to earn income until the cash is used. Shares of the Fund will could be redeemed to pay for transactions such as payments, purchases and other electronic money transfers from PayPal customer accounts.

As of last week, the fund held $471 million and had returned 0.04% to investors so far this year, reports SmartMoney. A PayPal rep told SmartMoney, that “market conditions, financial advantages of the money market fund have diminished” for its merchants.

The investment vehicle has had issues previously. In the past, the fund was seeing around 5 percent in returns. But more recently, the fund earned around 0.15% in returns.

Here’s the message sent to the fund’s participants:

Hello [ ],

Thanks for using PayPal and the PayPal Money Market Fund. Unfortunately, we’ve decided to close the Money Market Fund, effective 7/29/11.

What does this mean for you? PayPal will transfer any undisbursed dividends you’ve earned into your PayPal account within 7 business days after we close the fund. Don’t worry; you don’t have to do a thing.

Your 2011 tax documents will continue to be available on the Fund Summary page in your PayPal account throughout 2012. You’ll receive a tax statement from PayPal only if you’ve earned $10 or more in dividends in 2011.