Fidelity Cash Sweep Account Rates
Fidelity Investments offers several options for idle cash, though not all are available for every account type. Read on for the details.
Fidelity Money Market Fund
The most common option Fidelity uses for uninvested cash is the money market fund. Fidelity offers multiple funds for this purpose. All are protected by SIPC up to $500,000 in total (not for each fund). Since these funds are considered securities and not actual cash, once cash is moved into them, SIPC’s $250,000 insurance on cash doubles. This is a significant advantage that money market funds offer compared to straight cash.
The downside of money market funds is that their share values could drop below $1.00. Cash doesn’t have this risk. It’s uncommon for the NAV to fall below a dollar (also known as “breaking the buck”), but it has happened in the past.
Whichever fund an account uses, free cash will be automatically swept into it. There’s no need to manually place an order as you would with a regular mutual fund.
Fidelity is currently using three primary money market funds as core positions in brokerage accounts. They are:
SPAXX, the Fidelity Government Money Market Fund. This fund has an expense ratio of 0.42% with a current yield of 4.99%.
FDRXX, the Fidelity Government Cash Reserves Fund. This one has an expense ratio of 0.33% and a 7-day yield of 5.00%.
FZFXX, the Fidelity Treasury Money Market Fund. This fund has a management fee of 42 basis points and is currently yielding 4.99%.
All three funds hold securities issued by the U.S. government. They have no transaction fees, no loads, and no minimum hold periods.
Fidelity FCASH
The second option Fidelity offers for free cash balances is FCASH. This is simply a deposit of cash that is SIPC insured. It is not invested in any security, including money market funds. The advantage of this option for Fidelity is that the broker can use it to fund its day-to-day operations. The current interest rate on FCASH is 2.69%.
Fidelity FDIC Sweep
Fidelity clients who prefer FDIC insurance can get it through the firm’s FDIC-sweep program. This program works by moving idle cash to a partner bank that is FDIC insured. The cash sits in the bank’s vault but is available for trading inside the Fidelity brokerage account.
Fidelity uses at least five program banks in its sweep program, so each customer is eligible for at least $1,250,000 in FDIC protection, five times the normal limit of $250,000. This provides a significant advantage for customers with large cash balances: more FDIC insurance with a single account.
Currently, the FDIC-sweep program has an APY of 2.72%, which is comparable to the SIPC rate.
Fidelity has also launched a new feature within its FDIC-sweep program: Money Market Overflow. If a customer has more than $1.25 million in idle cash, or whatever the maximum is at the time, the excess money will be moved into a money market mutual fund. Currently, Fidelity is using FZSXX, the Fidelity Government Money Market Fund, for this purpose.
FZSXX is very similar to the other money market funds mentioned earlier. It has an expense ratio of 0.46% and a yield of 4.99%.
Comparison
Majority of brokerage firms offer very low interest on investors' uninvested cash. E*Trade's
cash sweep rate, for example, is 0.01%.
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4% APY
on free cash balances.
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Choosing a Core Position at Fidelity
It’s easy to switch the core position from one option to another in a Fidelity account. To do this, click on the link at the very top of the site for the virtual assistant (it may also appear in the lower-right corner of the site). This will open a pop-up window with the automated chat system. Type in “change core position,” or something similar, and the system will show the available choices for the selected account.
Here’s where it gets interesting: Fidelity limits the available cash options by account type, and some accounts may have choices not listed here. The robo chat system will display all available options for the selected account (in case you have more than one account with Fidelity). You simply need to choose the one you prefer. If you don’t see the core position you want, you can contact Fidelity for further assistance.
By default, the Fidelity Cash Management Account uses the FDIC-sweep program. During our testing with a Roth IRA, we were given only two choices in the robo chat: SPAXX and FDRXX.
Updated on 8/29/2024.
Chad Morris is a financial writer with more than 20 years experience
as both an English teacher and an avid trader. When he isn’t writing
expert content for Brokerage-Review.com, Chad can usually be found
managing his portfolio or building a new home computer.
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