Spaxx vs FDIC: Which Fidelity Core Position is Best for You?

For all the time avid investors spend poring over their portfolio compositions, minimizing tax burden, and comparing top-performing ETFs, some elements of their investment strategy don’t get as much attention. One such area is choosing between core positions such as Fidelity’s SPAXX or FDIC-Insured Deposit Sweep Program.

A core position is an essential component of any healthy investment portfolio. It adds liquidity, reliability, and financial security where you need it most, so choosing one that meets your needs is a must. If you invest with Fidelity, this search has likely brought you to a choice between two of their top core positions: SPAXX and Fidelity’s FDIC-backed offering. So which one is right for you?

The Vital Role of a Core Position

A core position is where your cash goes within your investment account before you invest it and sometimes after you divest it. When you add money through a checking account or payroll contribution, earn dividends, or sell an investment, the money likely lands in your core position before moving on to its next destination. It is like the Grand Central Station of your investment portfolio.

All types of standard investment accounts have a core position — IRAs, 401(k)s, taxable brokerages, etc.

In the same way that your checking account acts as a crossroads for multiple sources of income, payments, and withdrawals, a core position is also intended to handle significant traffic with minimal disruption. Therefore, it should be highly liquid and hyper-stable, like a typical checking or savings account. Also like a savings account, money in a core position should earn some regular interest, though likely not enough to significantly alter one’s financial future.

The purpose of a core position is not to make holders rich, at least not directly. Instead, it is a safe haven for cash that is transitioning between places.

SPAXX (Fidelity Government Money Market Fund)

The Fidelity Government Money Market Fund, better known as SPAXX, is one of Fidelity’s most common offerings for a core position. Like many core positions across investing shops and brokerages, SPAXX is a money market fund.

In many ways, money market funds are close equivalents to savings accounts. They aim to be easily accessible and highly reliable while offering modest interest payments regularly. Like a savings account, a money market tends to have a minimal threshold to open an account, if there is one at all. SPAXX falls into the latter category and has no minimum dollar amount to buy into it.

SPAXX invests its fund money primarily in US government securities. Overall, these holdings give the fund a small amount of interest for investors and keep it stable with almost no risk to capital preservation.

FDIC-Backed Savings

The Federal Deposit Insurance Corporation, better known as FDIC, exists to keep everyday Americans’ money safe. Established nearly a century ago amid the great depression, the FDIC insures people’s bank account deposits in the case of bank failures.

If you see the FDIC logo displayed on the front door of a bank, which you almost always do in the US, your deposits there are protected. Even if that bank were to fail entirely, any money you had there up to $250,000 is insured by the FDIC.

Fidelity’s FDIC-Insured Deposit Sweep Program

FDIC insurance is typical for everyday banking options like checking and savings accounts, but it can also exist for other vehicles. Fidelity’s FDIC-Insured Deposit Sweep Program is one such alternative.

Within the program, Fidelity sweeps the uninvested cash within your account into one or more accounts with participating banks. It acts as a wrapper around a set of FDIC-insured bank accounts. The money you put into this position is insured up to $250,000 per bank.

If your cash balance in this holding exceeds that threshold, Fidelity will place any overflow into its Government Money Market Fund Class S (FZSXX). FZSXX is like a twin sibling to SPAXX. The two invest in the same securities and serve a similar purpose, although FZSXX has slightly higher expenses.

SPAXX vs FDIC Analysis

Fidelity’s FDIC offering and SPAXX both have a lot to offer, but one thing above all: a safe, stable place to put your uninvested capital. Still, the question remains: is one of these the superior go-to choice for a Fidelity core position?

For a close side-by-side comparison, let’s break down a few of the key traits and figures of the two holdings one by one to see where each one shines.

1. Expenses and Interest Yield

Let’s start with the core financials — which of these two accounts costs more, and which pays better?

SPAXX has an expense ratio of 0.42%. The FDIC expense ratio will vary based on the bank accounts within the program but typically in the much lower range of 0.01-0.03%. Money beyond $250,000 with the FDIC program will flow into FZSXX with a higher expense ratio of 0.46%.

As of this writing, the 7-day interest yield for SPAXX is a rather impressive 4.98%. Yields in the FDIC sweep program will vary daily and differ from one bank account to the next but will generally not be competitive with SPAXX’s rates. Any overflow money that goes into FZSXX will again mirror the yields of SPAXX.

In short, while the FDIC numbers vary, SPAXX will usually be the higher-yielding, though more expensive option. 

2. Safety and Stability

When it comes to principal stability, it is a nearly indistinguishable comparison as both avenues are highly stable and unlikely to lose money. The only real risk with either position is a catastrophic event such as a bank failure, and even in that case, both options can offer some backup security for peace of mind:

As its name not-so-subtly suggests, the FDIC-Insured Deposit Program carries FDIC insurance on deposits up to a maximum threshold of $250,000 per bank.

SPAXX does not carry FDIC backing but has similar coverage through the SIPC or Securities Investor Protection Corporation. Like the FDIC, the SIPC protects and insures depositors’ money in the case of institutional failure. In the event that Fidelity was to fail entirely, the SIPC would cover investors’ money up to $500,000, including up to $250,000 in cash-equivalent positions. This latter $250,000 would apply to core positions like SPAXX. 

It is important to note that neither the FDIC nor the SIPC protects against ordinary investment losses, only institutional failures. However, in the case of hyper-stable positions like SPAXX and the FDIC sweep program, there is a near-zero risk of principal loss anyway.

3. Holdings and Liquidity

SPAXX primarily holds a mix of US government securities, including treasury bills and US government repurchase agreements. These holdings generally offer stability and modest fixed income but limited principal growth.

Holdings within the FDIC program go entirely into FDIC-insured bank accounts. The only exception to this distribution is cash deposits beyond the $250,000 FDIC threshold, which flow into FZSXX instead.

As mentioned above, FZSXX is quite similar to SPAXX and holds the same investments. So, if you opt for the FDIC program and keep more than $250,000 in that option, any amount above the threshold will look very similar to if you had used SPAXX.

Liquidity on both offerings is high, and there is no significant volatility to consider. Generally, the only risk to moving money through either would be the case of Fidelity (or one of its partner banks in the case of FDIC) failing as an institution. And even in that case, both options have a form of deposit insurance.

4. Taxes

It is always wise to consider the tax implications before making an investment decision, but it is probably not a significant factor in this case.

Interest from either of these positions will count as ordinary income from a tax perspective. Since the interest rates will be modest in most cases, the accompanying tax burden will also have minimal impact. Capital gains tax is a non-issue here, as principal growth does not come into play.

The main exception to this setup is if you hold one of these positions within a tax-advantaged account such as an HSA, IRA, or 401(k). In such a case, the tax advantage of that account would apply the same way it does to the other investments within it.

Other Considerations on Core Positions

While a core position is an essential element of your investing ecosystem, hyper-optimizing it is not as crucial as it is with, say, your primary mutual funds and other equity investments.

As long as your core position can check a few essential boxes — liquidity, stability, security — then it’s probably up to the job. Optimization, in this case, likely won’t move the needle in the same way it might when, for instance, minimizing expense ratios on the ETFs in your portfolio.

In this way, a core position is something like a refrigerator. A fridge is an essential asset to a modern home ecosystem. Some may have slightly different features, and one may appeal to you more than another. Still, no comparison is nearly as significant as the difference between having one and not having one. If you own a refrigerator, and it does what you need it to, you’re probably in good shape.

SPAXX vs FDIC: Making the Call

Deciding on a core position for your investment portfolio, such as the choice between SPAXX and FDIC, is one of those financial choices that’s worth considering but probably not worth overthinking.

This comparison is similar to choosing a savings account in more ways than one. One may have slightly different features that appeal to you or have a slight edge in interest rate. Still, strictly on financials, neither option will alter your situation significantly. As such, all you need is to take a quick look at the alternatives, pick the one that feels right to you, and go for it!