My Money Blog

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.

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”.