SPAXX vs. FDIC vs. FDRXX vs. FZFXX – Fidelity Core Position

If you’ve got a Fidelity investment account, you’ve probably encountered several options for your “core position” for cash: SPAXX, FDIC, FDRXX, and/or FZFXX. I compare them here.

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Introduction – What is the Fidelity Core Position?

Your “core position” at Fidelity simply refers to where your uninvested cash goes inside your account. For example, if you have 75% in an S&P 500 index fund like VOO and 25% uninvested cash, that 25% cash will automatically go into whatever fund or vehicle you select as your “core position.” You have several options for how exactly that cash is held, which is why you’re on this page in the first place.

First, let’s get the obligatory reminder out of the way that market timing is usually more harmful than helpful, and DCA is inferior to investing a lump sum on average, so you probably shouldn’t be holding much actual cash in the first place. But note that I’m not referring to something like T-bills or short-term government bonds, which are considered a “cash equivalent,” and which may be a perfectly sensible investment depending on your personal goals, time horizon, and risk tolerance. While several of these funds do indeed have allocations to T-bills, none of these options we’re discussing here for the core position would be considered a dedicated T-bills fund.

By the way, here’s the section and button you’re looking for:

Now that that’s out of the way, let’s compare SPAXX, FDIC, FDRXX, and FZFXX.

SPAXX vs. FDIC vs. FDRXX vs. FZFXX

So which Fidelity core position should you go with? Let’s talk about ’em.

SPAXX – Fidelity Government Money Market Fund

As the name suggests, SPAXX is what’s called a money market fund. This is a fund that holds ultra-short-term instruments that are considered cash equivalents – such as CDs, commercial paper, and repo agreements – in order to pay what is usually a tiny interest rate. This type of fund usually pays a marginally higher interest rate than that of a plain ol’ savings account at a bank. The tradeoff, of course, is that a money market fund is not insured.

SPAXX is specifically collateralized by government securities, and would thus be considered safer than a broader money market fund that includes corporate debt. If we look at the holdings of SPAXX, it’s mostly U.S. government repurchase agreements, followed by U.S. Treasury Bills and U.S. Treasury Coupons.

We would expect a fund like this to have volatility no greater than about 3% in either direction. At the time of writing, with interest rates so low, SPAXX has a yield of 0.01% and a net expense ratio of 0.06%. Its lifetime historical average annualized pre-tax return has been about 2.5%.

FDIC – FDIC-Insured Deposit Sweep Program

As the name suggests, this is simply an FDIC-insured vehicle into which cash is “swept” inside the account. FDIC stands for Federal Deposit Insurance Corporation, which is quite literally the organization that insures your cash deposits up to $250,000. This is basically a true savings account like you’d have at your regular bank. In fact, Fidelity actually spreads your deposits here among several banks; that’s why it’s called a “program” and is not an actual investable fund.

As such, we’d expect it to pay less than the other options on this list, but it can be considered comparatively less risky and less volatile. With this program, your cash is not exposed to any kind of market risk like with others on this list. That said, “less risky” in this context just means we’re basically going from extremely safe to riskless.

At the time of writing, this FDIC cash sweep program has an interest rate of 0.01% and also a fee of 0.01%.

This program may also be listed as “FCASH” in your account tab if it’s a taxable account.

FDRXX – Fidelity Government Cash Reserves

Like SPAXX, FDRXX is another U.S. government money market fund. For all intents and purposes, it is basically an older, more expensive version of SPAXX. Their holdings are nearly identical and they have the same yield and the same historical returns.

Whereas SPAXX launched in 1990 and has a net expense ratio of 0.06%, FDRXX launched in 1979 and has a fee of 0.08%. I see no logical reason to choose FDRXX over SPAXX.

FZFXX – Fidelity Treasury Money Market Fund

You may encounter FZFXX as an option in your taxable account. It’s basically the same as SPAXX and FDRXX except it does not have the 10% or so in agency securities. This one is entirely U.S. Treasury securities. In that sense, it is slightly more tax-efficient and thus may appear as a choice for your taxable brokerage account with Fidelity. However, while its yield is the same as SPAXX, its net expense ratio is still a bit higher at 0.08%, so I’d still go with SPAXX over FZFXX

Conclusion

Don’t overthink your Fidelity Core Position. If you are willing to sacrifice return/yield for zero volatility and virtual risklessness, go with the FDIC-insured cash sweep program. If, however, you want a very safe parking garage for cash that would be expected to have a positive nominal return, a government money market fund is a fine choice. For all intents and purposes, the 3 money market funds on this list are nearly the same thing. Of course, currently they’re all essentially paying the same yield because interest rates are extremely low. In 2019 these money market funds were paying around a 2% yield.

Under “normal” circumstances of non-zero interest rates, I’d personally keep it simple and just go with SPAXX for its lower fee. You can also switch between them at any point based on whichever one is paying the most, but this basically comes down to comparing SPAXX (gov’t MMF) and the FDIC program (banks), as we’d expect SPAXX to pay about the same as FDRXX and FZFXX. There would be more discussion to be had if any of these held corporate debt issues, as that would raise the risk profile, but thankfully these are all government funds. Since they’re all paying the same thing right now which is basically zero, there’s no real reason not to just go use the FDIC cash sweep program.

Conveniently, interest from the government securities will also be state-tax-exempt.

At the end of the day, this is definitely not a decision to lose sleep over.

What’s your Fidelity Core Position? Let me know in the comments.

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Disclaimer:  While I love diving into investing-related data and playing around with backtests, I am in no way a certified expert. I have no formal financial education. I am not a financial advisor, portfolio manager, or accountant. This is not financial advice, investing advice, or tax advice. The information on this website is for informational and recreational purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. Do your own due diligence. Past performance does not guarantee future returns. Read my lengthier disclaimer here.