How to Use SPAXX for Buying CDs
Here’s a summary of the main problem and solutions discussed in the conversation:
- Main Problem: The user is confused about whether deposits to a Certificate of Deposit (CD) should come from the SPAXX money market and if they can continue to deposit into a CD that is already locked in.
- Solution: The user needs to have cash available in their account, specifically in the SPAXX money market, to purchase a CD.
- Solution: Fidelity allows clients to trade fractional CDs, enabling them to invest smaller amounts starting from $100, making it easier to get started with CDs.
- Additional Resources: Fidelity provided links to their Learning Center for further information on Fixed Income products and FAQs on Fractional CDs.
Here’s the full thread
Hello Fidelity, I’m seriously looking to CD ( certificate of deposits ) and am wondering if deposits to a CD is supposed to come from the SPAXX money market? If so, that would make it easier to transfer when I build up to $100 minimum to start one. But also can one continue to deposit on a CD that’s locked in? Thanks!
Hey @Parzival1099, thanks for reaching out.
To answer your question, you will need cash available in your account to purchase a Certificate of Deposit (CD). The Fidelity Government Money Market Reserve (SPAXX) is a core position on your account, which works as the “wallet” for your account where uninvested cash is stored.
What is a Core Position?: https://www.fidelity.com/learning-center/investment-products/mutual-funds/core-position-video
When purchasing CDs traditionally, you’d make an initial investment, then receive an amount of interest after a set time passes, known as the maturity date. CDs are typically sold in increments of $1000 and will have a set yield. For example, a 1-year CD with a 3% yield would pay you $30 if held to maturity. so you’d pay $1000 upfront, then receive $1,030 at maturity.
With that said, we recently started allowing clients to trade fractional CDs where you can purchase slices of a CD in $100 increments, which is likely what you’re referring to as the minimum. Trading fractional CDs works the same way; with maturity dates, interest, etc. However, it allows you to invest smaller amounts for a smaller piece of the yield pie. Using the example above, if you invested $100 into that same CD, you’d receive $3 at maturity.
There is a lot to unpack when explaining CDs, so I recommend checking out the link below to familiarize yourself further with our Fixed Income products and how they work. If you have other questions about anything in particular, feel free to follow up with us here and we’ll be glad to answer!
Learning Center – Fixed Income: https://www.fidelity.com/learning-center/investment-products/fixed-income-bonds/fixed-income-bonds-cds
Our official subreddit’s 101 article on CDs: https://www.reddit.com/user/fidelityinvestments/comments/10xctsg/a_101_guide_on_where_to_find_cds_what_terms_mean/
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Okay. I figured I would need cash in SPAXX to do it.
Fractional CD is what I’m thinking of.
Yeah, there definitely can be a lot of info to unpack. It sounds like you were just asking if you needed cash in your core position to buy them, so the simple answer there is yes.
Check out the FAQs on Fractional CDs on this page for more info: https://digital.fidelity.com/prgw/digital/finewissues/
If you have any other questions pertaining to fractional CDs, we’re here to help!
Thanks!