SPAXX vs FDIC: Picking The Right Fidelity Core Position

We Compare SPAXX vs FDIC:

In the investment world, idle money is almost a crime; you shouldn't have any cash sitting around. Fidelity has made it easy to have your uninvested cash put into something until you're ready to buy stocks, bonds, etc., and that's your Fidelity core position.

Put another way, your Fidelity core position is where your idle cash goes.

Fidelity provides several options for your core position; that's where SPAXX and FDIC come in.

But, of course, a savvy Fidelity investor will want to consider all available options and find out their pros and cons to optimize their investment, and that's okay. 

Here's the difference between the two Fidelity core positions in a nutshell.

SPAXX offers you better interests, while FDIC provides you better safety for your money.

This SPAXX vs FDIC analysis makes your choice process less difficult by extensively assessing the two.

SPAXX vs FDIC Graphic


What Is The Fidelity Core Position?

Usually, your “Core Position” is how you hold the uninvested cash in your account. So, for instance, if you have $1,000 in your account, not invested in anything, the money goes into any investment vehicle you choose as your core position.

Fidelity's core position, then, is where the uninvested cash in your Fidelity account goes.

Once you open a Fidelity account, Fidelity automatically provides a core position to hold uninvested money and process your transactions.

Fidelity's core position makes it possible to earn interest on your idle cash, just like a savings account.

A core position acts as a wallet; when you make a transaction, money in your wallet is used to process the transaction.

In the same way, when you sell something, the proceeds go into your wallet.

When you buy a security, cash in your core position is used to pay for the trade, and when you sell a security, the profit goes into your core position.

In addition, you can use it to process electronic funds transfers, wire transfers, direct deposits, and other payments available on the platform.

Fidelity gives you a few different options to hold your cash. These include SPAXX, FDIC, FDRXX, and FZFXX.


SPAXX Description

Category: U.S. Govt Money Mkt
Portfolio Style: U.S. Govt Money Mkt
Fund Inception: February 5, 1990
Expense Ratio: 0.06%

SPAXX is the ticker symbol for Fidelity Government Money Market Fund. Launched in 1990, SPAXX remains the most widely held Fidelity fund in the money market fund category. The fund seeks to achieve high-yield returns through high liquidity and capital preservation.

SPAXX typically invests at least 99.5% of its total assets in cash, U.S. government securities, or repurchase agreements that are collateralized fully (i.e., collateralized by cash or government securities). In addition, it typically invests at least 80% of its assets in U.S. government securities and repurchases agreements for those securities. 

The fund invests in U.S. government securities issued by entities chartered or sponsored by Congress but whose securities are neither issued nor guaranteed by the U.S. Treasury.

The SPAXX's top holdings included the following:

  • U.S. Government Repurchase Agreements (49.75%)
  • U.S. Treasury Bills (24.28%)
  • Agency Floating-Rate Securities (11.57%)
  • Agency Fixed-Rate Securities (7.62%)
  • U.S. Treasury Coupons (6.31%)

Composition by Instruments:

SPAXX Holdings

From these top holdings, it's evident that SPAXX is a broad-range investment. The fund's annual expense ratio is 0.06%, and the dividend yield is 0.01%. Its one-year total return is 0.00%.

SPAXX will automatically be used to hold the money when you deposit cash into your Fidelity account. The same applies to your core balance, uninvested cash that may remain in your account. Therefore, describing SPAXX as a core cash position is not wrong.


FDIC Description

FDIC means Federal Deposit Insurance Corporation. The acronym FDIC refers to a government agency in the United States that insures cash deposits at its member banks, generally up to $250,000 per account.

As a member bank of FDIC, Fidelity runs an Insured Deposit Sweep Program on the Fidelity Cash Management Account. The Program allows Fidelity to sweep the uninvested cash balance in specific Fidelity accounts to one or more of its member banks where the FDIC insures it.

These program banks' accounts are interest-bearing accounts while assuring the individual of security.

Therefore, the “FDIC-Insured Deposit Sweep” is a core position to hold uninvested cash in certain Fidelity accounts.

The reason for a Fidelity “FDIC-Insured Deposit Sweep” is security, basically to guarantee customers get their money paid back in the case of any problems.

While each bank's FDIC insurance coverage limit is $250,000, $5,000 is reserved for accrued interest. For example, a customer with a $500,000 cash balance would have the following:

  • The first $245,000 was swept into the first bank on the Program Bank List.
  • The next $245,000 swept into the second bank on the Program Bank List.
  • Finally, the remaining $10,000 was swept into the third bank on the Program Bank List.

After establishing an account, you may select a different Program Bank List.


What's the Difference Between SPAXX and FDIC?

The main difference between SPAXX and FDIC is their dividend yield. SPAXX pays a 1.25% dividend yield, while FDIC pays 0.01%.

To arrive at a conclusion for SPAXX vs FDIC, a pivotal point is that both SPAXX and FDIC are options to hold your uninvested cash with Fidelity.

In a Fidelity Government Money Market Fund (SPAXX), your money is invested in a mutual fund and earns daily dividends paid to you monthly.

FDIC-Insured Deposit Sweep Program (FDIC) is an interest-bearing position eligible for FDIC insurance.

Once you deposit cash into your Fidelity account, the uninvested cash will be placed in SPAXX automatically.

But then, if you decide to change your core position, FDIC is one of the money market funds options available to you.

These products were developed after investors lost money in their money market accounts in 2008, which was never supposed to happen.

SPAXX is a money market fund where you are not insured or guaranteed anything and can lose money. This is supposed to be very unlikely, but there's a possibility.


Expense Ratio

SPAXX has an expense ratio of 0.06%, while FDIC has an expense ratio of 0.01%.

As a result, SPAXX has a higher expense ratio, although a 0.5% difference may not heavily impact your returns.

The winner here, though, remains the FDIC-Insured Deposit Sweep Program (FDIC).


Interest Rate

Although the difference between the two interest rates is small, SPAXX offers a better interest rate. This is not surprising since the fund earns daily dividends and has a broad range of investments to its advantage.

SPAXX: 1.25%

FDIC: 0.01%

Remember, the investment goal is profit, and the difference between the two can be significant if the money involved is enormous.


SPAXX vs FDIC: Picking the Right Fidelity Core Position

The big idea behind SPAXX is to preserve and grow your uninvested cash through a bit of interest. So your money won't experience volatility and may not grow so fast, but it doesn't go down either.

SPAXX is similar to a savings account; it pays interest and lets you withdraw your money.

SPAXX vs FDIC Comparison

However, interests are lower compared to most savings accounts. Nevertheless, it's an excellent place to hold your idle cash and make a few bucks with interest, and it can be a way to achieve short-term savings goals.

The FDIC-Insured Deposit Sweep Program provides security for your uninvested cash via FDIC insurance. Good enough, you can insure up to $250,000 per account.

So, while you're not getting any additional on your money, they are in safe hands.

If your bank goes out of business suddenly or the money market funds drop in value, you can have a safe place.


Which Core Position Is Better SPAXX or FDIC?

The whole “core position thing” aims to have a place where you can hold your money till you're ready to invest it in securities or any other thing. Of course, some people will say, “it doesn't matter; just pick one randomly,” which is not bad.

However, this SPAXX vs FDIC analysis shows that each fund has its edge.

The FDIC-insured cash sweep program becomes a perfect match if your primary concern is to beat volatility and shield your money against possible risks.

On the flip side, a government money market fund is the right pick if you care about return and yield.

But, as an investor, you want to seize every opportunity to make more profit, so, no lengthy analysis, go for SPAXX.

Although interest rates are extremely low currently, if it rises in the future, SPAXX will provide higher returns.

Related Posts:


SPAXX vs FDIC Winner

The purpose of an investment account is clear; multiply your money by putting it into promising investment opportunities.

Keeping your money in an account that doesn't offer the slightest interest is against the rule. And this is particularly essential for young people trying to secure their financial future with retirement accounts like the Roth IRA.

Choosing between the two Fidelity core positions is easy if you can identify the difference between the two.

SPAXX and FDIC are different options for parking your cash. Both yields are negligible, and you're not necessarily more or less safe.

However, SPAXX offers better interests, which is the goal of every investment.