Fidelity High Yield Savings and Money Market Funds
- Main Problem: The user, Parzival1099, is confused about the differences between Certificates of Deposit (CDs) and money market accounts, specifically regarding high yield savings options.
- Solution Provided: FidelityEmilio clarified that SPAXX is indeed a money market fund and explained its role as a core position for uninvested cash in brokerage accounts.
- Additional Information: FidelityEmilio compared the flexibility of money market accounts to CDs, noting that money market rates fluctuate while CDs have fixed rates for their term.
- Tax Implications: The conversation highlighted that the categorization of money market funds (government, prime, municipal) affects tax implications but not the stated return.
Here’s the full thread
Hello Fidelity, I’m still researching on CDs and wonder if there was a high yield savings in there. Should I assume SPAXX is already a high yield money market even though it’s under the government category and the other two are Prime and Municipal? I’m just trying to clear up the confusion a bit so as to have specific focus on saving up with a high yield rate. Thanks!
Hi @Parzival1099, thanks for the question. Do you mind clarifying a bit for me? You mentioned researching Certificates of Deposit (CDs), but then asked about interest rates in a money market, which would be a different investment type. I’m more than happy to have the conversation with you, just want to make sure we’re on the same page.
What I can say based on what I think you’re asking is that the interest rates you’re seeing for CDs and Money Markets are based on a yearly figure. How the fund is categorized (government, prime, municipal) won’t have an effect on the stated return, but rather, could have different tax implications when you realize gains/losses from selling. That would be something you’d need to discuss with a tax professional.
Now, again, the interest rates are on a yearly basis. So a 1 year CD with a 3% interest rate would garner $30 with a $1,000 investment. As you’re probably gathering, the big difference between CD interest rates and money market interest rates is that the CD rates are locked in for that time period, whereas money market interest generally fluctuates.
Interest rates for money market funds are determined weekly and are based on competitive and economic trends, and are subject to change. For example, a money market fund generally pays accrued interest on the last business day of each month. This is referenced as the “7-day yield,” defined as the average income return over the previous seven days, assuming the rate stays the same for one year. It is the fund’s total income net of expenses, divided by the total number of outstanding shares, and includes any applicable waiver or reimbursement.
I know I sort of dropped a ton of info here, so please feel free to ask more questions!
I’m actually asking about the money market. I’m aware of CDs though.
Gotcha, sorry for the info dump above! I had that typed out but wasn’t sure if you were going to respond right away 😅
Let me know if you have questions after reading my short story.
I see. It looks like money market seems to have some flexibility than CDs as they’re not locked in but rates fluctuate time to time. Isn’t SPAXX already a money market account? I seem to have that.
Yes, SPAXX is a money market fund and is often the subject of interest questions since it’s one of the default core positions where uninvested cash is held in brokerage accounts. To clarify your mention of flexibility, generally yes, money market funds are more flexible in terms of liquidity since they’re already considered cash, but you can also sell CDs in the secondary market. Once you receive proceeds from a sale, they’ll go into your core position automatically by default, where your interest will start accruing there.
Does that make sense, though? I want to make sure you got the answers you were looking for. I know I can get a bit “jargony” at times.
That’s quite clarified 👍.
I had to double check to make sure I knew what I was looking at.
Cool! That’s why we’re here. Let me know if anything else comes up. 🟢
Sounds good. Thanks!
Yes they have flexibilities compared to CD’s