Update 6/18/24: This new option is now live, at least for me. Fidelity says it should be available to everyone by the end of this week. Worth a check (directions at the bottom below). Screenshots from my account below.
Original post from 4/21/24:
A flexible alternative to a traditional bank account is getting better. The Fidelity Cash Management Account (CMA) is a brokerage account that also includes traditional bank features like ACH routing and account numbers, Billpay, mobile check deposit, physical checks, and ATM/debit cards.
Perhaps a lesser-known fact is that the standard “Fidelity Account” is a brokerage account that also offers ACH routing/account numbers, Billpay, mobile check deposit, checkwriting, and an ATM/debit card. One of the major additions to the CMA (and missing from the standard Fidelity Account) is that you get unlimited ATM fee rebates, worldwide:
Your account will automatically be reimbursed for all ATM fees charged by other institutions while using a Fidelity® Debit Card linked to your Fidelity Cash Management Account at any ATM displaying the Visa®, Plus®, or Star® logos. The reimbursement will be credited to the account the same day the ATM fee is debited from the account. Please note that there may be a foreign transaction fee of 1% that is not waived, which will be included in the amount charged to your account.
Regarding that foreign transaction fee, I did some additional research and found that while officially, the Fidelity fine print states that there is a 1% foreign transaction fee that “may” apply, in practice, that 1% fee is only charged on signature-based purchases, not PIN-based transactions like ATM withdrawals. This was confirmed in this article by Robert Beauregard, Director of External Communications at Fidelity. This has also been confirmed by multiple anecdotal data points. You can check for yourself on a sample transaction using a calculator like this. Rather confusing!
One of the major drawbacks to the CMA was that the only option for the core position was their “FDIC-insured Deposit Sweep”, currently paying 2.72% APY (as of 4/21/24). While better than the 0.01% many other brokers offer on cash sweeps, this yield is much lower than that of the money market fund options available in the standard Fidelity account. To get around this, many people used the auto-draft feature that lets you set the standard Fidelity brokerage account as the backup funding source, and then kept a minimal or zero balance inside the CMA.
Perhaps Fidelity noticed this activity as well, or perhaps they noticed certain 5% APY cash offerings from competitors, because in less than two months (June 15, 2024), the CMA is adding the Fidelity Government Money Market Fund (SPAXX) an a core position option. If you have a Fidelity Cash Management Account and look at the “Additional Information and Endnotes” section of your March 2024 statement, you should find the following notice. This has also been confirmed by an official Fidelity representative on the r/Fidelity Subreddit. From my statement:
Please note that on or around June 15, 2024, you’ll have the option to elect Fidelity(R) Government Money Market Fund (SPAXX) as your core sweep investment vehicle. You will not need to take any action if you wish to retain the Bank Sweep as your core position. For additional information on your core position options, including the current yields on the Bank Sweep and money market funds, please visit Fidelity.com/spend-save/fidelity-cash-management-account/overview and FundResearch.Fidelity.com/mutual-funds/summary/31617H102.
The 7-day yield of SPAXX is 4.95% as of 4/19/24, significantly higher than the 2.72% FDIC-insured sweep. Money market mutual funds are unable to offer FDIC insurance, but they are still heavily-regulated by the SEC to hold very conservative and liquid investments. “Government” money markets have even stricter requirements, and that is why they are used as cash sweep funds. I personally lose zero sleep over holding cash in a money market fund run by a reputable firm like Fidelity, Vanguard, or Schwab.
This is a positive development for those that use the Fidelity CMA, especially if your state doesn’t have income taxes on investment interest that create an incentive to hold money market funds with mostly interest from Treasury bonds. If you do live in such a state, you should know that in 2023 neither Fidelity Government Money Market Fund (SPAXX) nor Fidelity® Treasury Money Market Fund (FZFXX) met the minimum investment in U.S. government securities required to exempt the distribution from tax in California, Connecticut, and New York. (Despite having Treasury in the name, FZFXX only had about 20% in eligible Treasury interest.) These are the core positions available in the standard Fidelity Account.
As such, residents of California, Connecticut, and New York may want to hold the Fidelity Treasury Only Money Market Fund (FDLXX), as it did meet those requirements in 2023 with roughly 90% of interest eligible for exemption. This is not a core option so you do have to buy this mutual fund manually, although the CMA account will sell it automatically to meet any cash demands that come up later. But still, if you forget for a few days, the interest difference is much smaller between SPAXX and FDLXX.
I am definitely switching over my core position as soon as I can. June 15th, 2024 is a Saturday, so I’ll check on Friday the 14th and then Monday the 17th. You can switch over manually by logging into Fidelity.com, going to “Accounts & Trade”,” Account Positions”, and then “Cash”. You should then see the button to “Change Core Position”.
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This is excellent news.
I continue to not have any issues with Fidelity with keeping the cash account at $0 and using auto-overdraft to transfer from a brokerage account, but I’ll probably change that some when this goes into effect.
I’ll be more inclined to keep the cash management account closer to the balance needed for normal monthly expenses and cut down on the number of overdraft transfers. They are annoying from an activity log perspective, since every debit means multiple entries for debit, overdraft transfer (both accounts), redeem.
This sounds very good. Is anyone able to confirm this? I talked to a Fidelity rep and chatted with two, any they don’t seem to know anything about it.
The note Jonathan quoted is in my recent statement from Fidelity as well.
In my experience, the /r/fidelity reps have a good handle on things. Here’s the thread I think Jonathan might have been referencing where a rep confirmed:
https://www.reddit.com/r/fidelityinvestments/comments/1bui60e/spaxx_as_cma_core_position_coming/
Also in my March 2024 statement at the end.
I was contemplating on switching my entire Vanguard assets to Fidelity but in certain things Vanguard still has the edge, like they don’t charge $1 per $1000 bond Fidelity charges on secondary market.
But Vanguard cash plus cash account at 4.7% doesn’t look as competitive anymore, and of course it lacks all the features fidelity offers so will be switching over my cash to Fidelity
I think you can get any fidelity money market fund rate even without this. Just leave the core settlement account balance 0. Fidelity will automatically liquidate your money market fund to pay for the expenses.
I have done just that for two years and have had no problems. I now earn interest/dividends that far exceed what my old bank paid me. I keep $100 in the sweep account and the balance of my cash in FZFXX. This Treasure Money Market reduces the amount of state incomes I am hit for each year.
Thanks for the tip about the tax efficiency of FDLXX.
While Fidelity does not currently offer it as a core position for cash, I think we can work around it with automation by setting up an automated weekly investment. I have not tried it yet, but if it works as I expect, an automatic investment into FDLXX would first consume cash from the core position, then consume cash from money market funds (what was previously in FDLXX). Therefore, it should work even with variable income, as long as the investment amount is at least as large as the average weekly income, and smaller than the typical cash size. If you don’t have enough cash in the core position plus money market funds, it should skip that week’s investment into FDLXX, according to the fine print I read.
For example, lets say you normally have $1000 in FDLXX and $0 in the core position (SPAXX), and you have a $500 weekly investment into FDLXX. If you get a deposit of $60 during the week, it goes into SPAXX leaving you with $1000 in FDLXX and $60 in SPAXX. If you do nothing, on trade day, it should, if I am right, automatically sell $60 from the core SPAXX position and $440 from the FDLXX position, and buy $500 of FDLXX, leaving you with $1060 in FDLXX.
Interesting idea…
Great. Now if they get rid of that 1% foreign fee I’ll move over to Fidelity!
I logged into Fidelity cash account this morning and was unable to change the core position. Anyone else have this issue?
According to Fidelity rep on Reddit, they will have this rolled out “by the end of the week”. They are taking advantage of their “on or around June 15th” language.
This worked for me late yesterday (Tuesday). I’ve had this account for a long time, it used to be my primary account back before Money Market accounts went to zero. I went to order checks, it told me that my last check order was in 2009
The option appeared on my account yesterday, and I changed my core position to SPAXX last night.
Opton was immediately shown for me and easy peasy to swap
Just wondering, is the core position just for all new deposit or do you have to do anything for the existing balance in the CMA? I switched mine to SPAXX and was processed, but the available cash balance still shows
Cash
FDIC-INSURED DEPOSIT SWEEP
I don’t have a Fidelity CMA account, but was hoping it would go live and be on it’s page:
https://www.fidelity.com/spend-save/fidelity-cash-management-account/overview
But it still says 2.72%, and no mention is SPAXX.