Its not an easy decision for someone who has never decided to invest in a saving account to make. But with a little research and simple "dabbling" in both of these options I have decided that it is most important to put my eggs in several baskets. It would be great to maximize an investment into one sole account, but when looking at the ups and down of these accounts, it would be best to use both.
Think about this small fact with me for a moment, it is possible to fund your paypal account with a credit card if you wanted to. And now that paypal has a money market fund that is automatically applied month to month on your statement balance it would be possible to pay your interest rate off with the money market fund? Maybe, but it would have to be one hell-u-va transaction. Either way, the paypal money market fund goes up and down month to month and has no mimimum to put in. Which makes it a good idea for someone who has about $100 they would like to earn interest on, or just to start an account. It's also a "liquid," which means you can use it at any time without penalty. Thats awesome, and is alot better than a Certificate of Deposit with penalties out the wazoo. The APY is also see-sawing around 5.05% which is better than a 4.25% CD at a bank. Ebay may very well be onto something with this venture. Ebay stocks looks pretty awesome right about now, and with the absorbtion of PayPal stocks also, it is likely to be a safe investment. The only con I have seen is that you have to wait 3-4 Business days to withdraw funds to an account, but you can counteract this by getting a paypal debit card. It all seems to simple right? I have yet to be "duped" by this program. I have left $0.78 in the money market and points and earned enough over a few months to hit a dollar. Safe and sound?
But who competes? I have seen ING direct be the first with the Orange Savings Account commercials on tv offering, originally a 3.75% apy savings account, but now the struggle between competitors has pushed it upto 4.50%. Not much further ahead is Citibank with their free checking, no minimum, no atm fee, student super saver account at, I believe the time this is being written, 5.00% apy. Its only a 0.50% difference in apy, but this has nationwide availabilty to walk into an office and talk to someone. That is alot more appealing than having to sit on a customer service phone line with someone at paypal who will, "... do everything in their power to make sure you never see your money again," according to many anti-paypal users. The rate is fixed at 5.00% which means it will never topple down to 4.50%, or less, like the money market may do. And since it is already a checking account, you can get the free atm cards from this bank. And they wont charge you any fees at atms across the nation. Sounds like a sweet deal.
In all, I would recommend doing what I did. Utilize both of these for the time being. There are other banks out there who want to jump into the "online savings" market, but be sure you read the fine print. Some may offer 6.00% apy, but will charge you and arm and a leg to transfer or use an atm card. Stick with companies that have branches nationwide, so, in the event of a problem, you wont be using the Bank of Omaha when you live in New Jersey. Its a heck of a drive to dispute a overdraft fee.