SPAXX vs FDIC: Which Fidelity Core Position Is Best for You? - Pathway to FI (2024)

If you have a Fidelity account, you’ve probably noticed that your uninvested cash sits in a fund called SPAXX or the FDIC-Insured Deposit Sweep Program. This is known as your “core position”.

What’s the difference? Does it matter which one you use?

Let’s talk quickly about what core positions, SPAXX, and the FDIC-Insured Deposit Sweep Program are. Then we’ll compare them so you can choose the best fit for you.

What is a Fidelity Core Position?

Your core position is where your cash automatically goes before you invest it. It could be a mix of cash deposits, interest, and investment dividends.

All account types have a core position, from your taxable brokerage to your Roth IRA and 401k.

You can think of it like a checking account. It gains interest while it sits there, and you can quickly and easily move it to another account or investment.You can also use it to process direct deposits, wire transfers, and electronic funds transfers (EFTs).

Though it earns interest, a core position isn’t an investment. The interest usually isn’t enough to beat inflation, and long-term gains are much smaller than most stocks and bonds.

So don’t look at these core positions as investment choices where you’ll hold a lot of money for months or years. Their best use is to temporarily hold cash that you plan to invest. They’re also good for near-term cash needs such as an emergency fund or house down payment.

Important note: make sure you know the rules and possible penalties before making cash withdrawals from a retirement account!

What is SPAXX?

The more descriptive name for ticker symbolSPAXXis the Fidelity Government Money Market Fund.​

Money market funds are mutual funds that hold highly liquid investment products from cash and cash equivalent securities to short-term U.S. government securities. SPAXX specifically holds U.S. government securities and repurchase agreements that are seen as very low risk but arenotguaranteed by the US Treasury.

Money market funds typically have low interest rates, comparable with a high-yield savings account. As of this writing, however, they’re producing higher returns because of the Fed’s attempt to fight inflation.

What is the FDIC-Insured Deposit Sweep Program?

The acronym FDIC stands for Federal Deposit Insurance Corporation. The FDIC is an independent government agency whose purpose is to make bank deposits safe and stable. It does this mainly by insuring those deposits and paying them back to depositors in the event of a bank failure. A recent example where the FDIC stepped in was the failure ofSilicon Valley Bankin March 2023.

FDIC insurance is common for checking and savings accounts. It can also be found in Fidelity’sFDIC-Insured Deposit Sweep Program. This program sweeps all the uninvested cash in your investment account into an account at one or more “program banks”. If your cash balance exceeds FDIC insurance limits, it will instead be deposited in the Fidelity Government Money Market Fund Class S (FZSXX).

FZSXX has the same investments as SPAXX, but a slightly higher expense ratio. Neither mutual fund is FDIC insured. They’re insured by the Securities Investor Protection Corporation (SIPC) instead. It’s important to note that SIPC doesn’t protect against investor losses. It only protects against the bankruptcy of a brokerage company.

From here forward,we’llrefer to the FDIC-Insured Deposit Sweep Program as “FDIC” for short.

Comparison between SPAXX and FDIC

The following table compares the mostimportant featuresof SPAXX and FDIC.

Fidelity Government Money Market Fund (SPAXX)FDIC-Insured Deposit Sweep Program (FDIC)
Expense Ratio0.42%Bank deposits: 0.01-0.03%
FZSXX: 0.46%
FDIC InsuranceNone.$250k per bank.
Fidelity doesn’t monitor deposit amounts, so safest to stay <$250k.
FZSXX: none.
SIPC Insurance$250k cash, $500k total. Bank deposits: none.
FZSXX: $250k cash, $500k total.
Interest Rate / Returns
(May 2023)
4.74% 7-day yield

Past Performance:
+2.72% 1 Yr
+1.18% 5 Yrs
+0.68% 10 Yrs

Bank Deposits: 2.57% yield
FZSXX: same as SPAXX
Tax TreatmentTaxed as ordinary income unless held in a tax-advantaged retirement account.Taxed as ordinary income unless held in a tax-advantaged retirement account.
LiquidityHigh. 55%-75% liquid assets.
Verylow riskof Fidelity failing and SIPC taking over.
High. Fully liquid exceptin the event ofa bank run. Then FDIC would take over.
Top Holdings
(May 2023)
U.S. Government Repurchase Agreements (67%)
Agency Floating-Rate Securities (23%)
Bank deposits (100%) unless deposits are greater than FDIC insurance limits. Then cash overflows to FZSXX.

The expenses for SPAXX and FDIC are built-in to the returns shown above. So SPAXX still works out to a higher interest payment than FDIC.

Note that Fidelity pays 0.01-0.03% to the “Program Administrator” of FDIC bank deposits, who is often the program bank itself. Also, Fidelity is paid a fee of up to 4% by the program banks for FDIC deposits. So Fidelity typically makes more money from FDIC than they do from SPAXX.

You might wonder why SPAXX doesn’t have preferred tax treatment since it holds U.S. treasuries. Treasuries on their own are exempt from state and local taxes. However, repurchase agreements are not. Therefore, dividends paid by SPAXX are generally unqualified and taxed as ordinary income when held in a taxable Fidelity brokerage account. If held in a tax-advantaged account such as a Roth IRA or 401k, tax treatment is the same for all core position and investment products.

Money market and bank deposits hold a steady value of $1.00 per share, so neither has capital gains when it is sold.

As you can see, both SPAXX and FDIC have insurance protection. FDIC insurance is better known, and bank failures do happen, even with larger banks. SIPC insurance isn’t well known simply because brokerage company failures don’t happen often. And no one expects a brokerage with the reputation of Fidelity Investments to fail! Between SIPC insurance and the safety of U.S. government securities and repurchase agreements, SPAXX may have a slight edge on FDIC for safety. But practically speaking, they’re both very safe.

Summary of SPAXX vs the FDIC-Insured Deposit Sweep Program

The bottom line is that SPAXX pays better interest rates, while FDIC rates are slightly more stable. In practice, both core positions are as liquid and as safe as you could need. The better core position for most people, therefore, is SPAXX.

Ultimately, if you’re using your core position correctly you aren’t holding much money there for long. In that case, SPAXX and FDIC are both fine choices.

Now that you know all you need to know about core positions, it’s time to decide how to invest! Read one of these articles next:

  • 5 Great Moves When Your Investments Are Down
  • How to Invest in a Volatile Stock Market
  • What Should My Asset Allocation Be for Building Wealth Versus Retirement?

And don’t forget tosign up for FREEat the bottom of the page to get much more value from PathwayToFI.

Join me on the Pathway to FI!

SPAXX vs FDIC: Which Fidelity Core Position Is Best for You? - Pathway to FI (2024)


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