That's for those who put their money in the Money Market fund, but money market funds are seldom (if ever) guaranteed by the FDIC.

Even people who have regular deposits that PayPal "holds" for them do not benefit from FDIC insurance in PayPal's name. PayPal fought to have themselves declared a non-bank so they would not have to follow federal regulations or sign up for the FDIC system. PayPal maintains that its actions are controlled by the user agreement each member clicks "yes" to when they sign up, and they are not controlled by federal banking regulations.

With so many banks and financial institutions going under, your would think that "Not a bank" PayPal would look better. But I think otherwise: in all the failures, FDIC insurance protects the depositors even if the bank folds. If PayPal folds, the only thing protecting depositors is the user agreement and PayPal's "belief" (as it says in its disclaimer) that its creditors would not be able to take the cash reserves.