How to Earn the Highest Cash Returns on Fidelity

Larry, Managing Editor

Updated on:

fidelity earn highest maximum cash returns money market funds treasury bills brokered cds ultra short term etfs

If you have cash sitting in a Fidelity account, it should generate income for you. You can now earn returns of over 5% a year on your cash by investing in certain investments from Fidelity. This return is much higher than what you’ll get from your bank or savings account, and it’s also simple and safe. Some of these investments are virtually risk-free. In this article, we’ll show you the simplest to more complex investments to earn higher cash returns. We’ll begin with Fidelity money market funds, move on to Treasury bills and brokered CDs, and finally touch on money market ETFs (also known as ultra short bond ETFs).

Fidelity Money Market Funds

Fidelity money market funds are the first type of investment to consider, and they currently pay at least 5% per year. Money market funds are the simplest way to start earning cash returns on Fidelity.

Fidelity offers 3 types of money market funds:

  1. Government & Treasury money market funds
  2. Prime money market funds
  3. Municipal money market funds

We’ll only cover the first two types in this article since they offer much higher yields and are far more popular than municipal money market funds.

We’ll also only review the funds with a minimum investment of $0. Fidelity has money market fund versions targeted at high-net-worth individuals and institutional investors. They’re very similar to the funds with no minimum investment, but Fidelity passes on more yield to clients in exchange for a larger minimum investment that starts at $100,000.

Government Money Market Fund

Let’s go over the first type of money market fund, the government money market fund. Fidelity offers four government funds with no minimum investment, which are:

  • SPAXX, Fidelity Government Money Market Fund
  • FDRXX, Fidelity Government Cash Reserves
  • FZFXX, Fidelity Treasury Money Market Fund
  • FDLXX, Fidelity Treasury Only Money Market Fund

These four funds each hold a different amount of U.S. Treasury bills, short-term debt that’s backed by U.S. Treasuries, or other U.S. government debt such as agency bonds (e.g., Fannie Mae). Treasury bills are considered the safest investments in the world because the U.S. government guarantees that it will pay back the money it borrows.

  • SPAXX is the most popular money market fund that Fidelity offers because it’s the default core position in Fidelity brokerage and retirement accounts. A core position is where Fidelity automatically “sweeps” your uninvested cash. SPAXX currently yields 4.99% with a year-to-date return of 4.01% and has an expense ratio of 0.42%.
  • FDRXX is almost identical to SPAXX, except its expense ratio is 0.34%. It’s a core position only for retirement accounts. If you have a retirement account with Fidelity, in our opinion this is a better core position than SPAXX. FDRXX currently yields 4.99% with a year-to-date return of 4.02% and has an expense ratio of 0.40%.
  • FZFXX is a Treasury money market fund. It invests in T-Bills and short-term debt backed by T-Bills, but it’s a degree safer than SPAXX and FDRXX, both of which invest in non-Treasury debt such as U.S. government agency bonds. As a result of its more secure holdings, its yield is slightly lower at 4.98%, with a year-to-date return of 4.00% and an expense ratio of 0.42%.
  • FDLXX is the Fidelity Treasury Only Money Market Fund. As the name implies, it only invests in Treasury bills. It’s the safest of the bunch, but also offers the lowest returns. It’s also not a core position option. FDLXX’s returns are state tax-free since it only holds Treasury bills. FDLXX offers a yield of 4.99% with a year-to-date return of 3.88% (the lowest of Fidelity’s four government funds) and an expense ratio of 0.42%.

Prime Money Market Fund

The second money market type is the prime money market fund. Fidelity only has one option with no minimum investment: SPRXX, also called the Fidelity Money Market Fund.

SPRXX invests in riskier assets than the government money market funds. While the bulk of SPRXX’s holdings are still U.S. Treasury bills and other U.S. government debt, it will also hold very short-term company debt such as CDs and short-term debt from banks and financial institutions. Because these assets are riskier, SPRXX has a yield of 5.07% and year-to-date returns of 4.09%. Its expense ratio is also 0.42%.

Fidelity Money Market Funds vs. Vanguard Money Market Funds and Other Brokerages

If you have accounts at other brokerages, Fidelity money market funds can yield less than some of their other brokerage counterparts such as Vanguard and Schwab. This is because Fidelity charges higher expense ratios than its peers.

An example is Vanguard. The equivalent of FDLXX on Vanguard is VUSXX (Vanguard Treasury Money Market Fund). As of the time of this writing, FDLXX offers a yield of 5.00%, while VUSXX offers 5.32%. VUSXX only charges an expense ratio of 0.09%, compared to FDLXX’s 0.42%.

The caveat is that Vanguard has a minimum investment of $3,000 for its money market funds, compared to no minimum for the Fidelity money market funds we covered.

Meanwhile, the same type of Treasury-only fund on Schwab is called SNSXX (Schwab U.S. Treasury Money Fund), which charges an expense ratio of 0.34% with no minimum investment. It has a yield of 5.10%. Unfortunately, there are no money market sweep features on the Schwab platform.

Our Opinion on Fidelity Money Market Funds

Here is a table comparing the different Fidelity money market funds.

Best viewed on the desktop for a full comparison. Data as of November 2023.

Here’s our opinion if you want to make your lives simple while earning money market returns: Take advantage of Fidelity’s sweep feature by sticking with SPAXX if you have a regular brokerage account, and FDRXX if you have a retirement account. FDLXX is worth considering if you live in a state with high taxes, but it requires manual buying and selling.

We want to mention that Fidelity treats all of its money market funds as cash. This means we can “sweep out” of any Fidelity market fund, even if it’s not a core position, to buy another security. If we held $10,000 worth of SPRXX and wanted to buy $3,000 of Apple stock, Fidelity would automatically sell $3,000 worth of SPRXX to instantly fund our purchase of Apple stock. Fidelity money market funds let us stay 100% liquid while earning cash returns!

Your decision to choose which money market fund to invest in will depend on your brokerage preference, desire for higher yields, and the amount of money you want to invest.

To learn more about Fidelity money market funds, check out the following articles:

Treasury Bills on Fidelity

The second way to earn higher cash returns on Fidelity is to buy Treasury bills ourselves. Fidelity money market funds hold a lot of Treasury bills, but it’s just as easy for us to buy Treasury bills directly on Fidelity’s platforms.

Treasury bills (also known as T-Bills) are U.S. Treasuries with a maturity of less than one year. Currently, the highest T-Bill yield is 5.49% on a 6-month maturity, and the lowest is 5.33% on a 12-month maturity.

By buying a T-Bill directly, we avoid Fidelity’s expense ratio on its money market funds, and we also earn rates that are higher. We’ll also benefit from state tax exemptions, which apply to all Treasuries.

However, Fidelity does not allow us to sweep in and out of T-Bills, like with money market funds. We have to manually buy and sell T-Bills ourselves. While there’s no fee to buy T-Bills on Fidelity, there’s a minimum investment of $1,000.

Buying and selling T-Bills is simple when following our “How to Buy Treasury Bills on Fidelity” guide, where we outline the step-by-step process of how to do this from start to finish.

To learn more about Treasury bills on Fidelity, check out the following articles:

Bank CDs on Fidelity (or Brokered CDs)

The third route for higher cash returns is to buy bank CDs on Fidelity, also known as brokered CDs. Brokered CDs is just a fancy name for bank CDs you buy on a brokerage such as Fidelity. Fidelity brokered CDs offer higher yields than normal bank CDs, because Fidelity will negotiate with the banks to offer Fidelity customers a better CD rate.

The highest yield for a Fidelity brokered CD with a maturity of less than one year is 5.65%. The highest CD rate that Fidelity offers across all its maturities is 5.85% for a 5-year CD.

Meanwhile, Chase Bank offers a CD rate of around 2-3% depending on how much you invest. The highest Chase CD rate offered is 5%, reserved only for customers who invest a minimum of $100,000. With the bank CDs on Fidelity, you’ll be earning more with no such restrictions.

Be aware of two things when buying a brokered CD:

  1. These rates are guaranteed only if held to maturity. Some of these CDs are callable, which means the bank issuing the CD can recall them early. This is typically done when rates go down, so they don’t have to pay you as much. To prevent this, buy a non-callable CD.
  2. Brokered CDs are liquid, meaning you can sell them on Fidelity’s secondary marketplace before they mature. But Fidelity’s secondary CD marketplace isn’t always super active, and you might not get the price you want to sell your CD at. Brokered CDs are still better and more liquid than a regular bank CD that forces you to pay an early withdrawal penalty.

To learn more about Fidelity brokered CDs, check out the following articles:

Ultra Short-Term Bond ETFs (Money Market ETFs) on Fidelity

The last method to earn higher cash returns on Fidelity is to buy money market ETFs. Also known as ultra short-term bond ETFs, these investments are newer and thus more unknown and underappreciated compared to the previous investments we mentioned.

There are two main types of ultra short-term bond ETFs:

  1. Treasury ETF
  2. Floating rate Treasury ETF

Treasury ETFs hold very short-term Treasury bills, just like Treasury-only money market funds.

The most popular one is SGOV (iShares 0-3 Month Treasury Bond ETF). SGOV was introduced in 2020 and holds T-Bills with a maturity of 3 months or less. SGOV currently has a yield of 5.14% with a year-to-date return of 4.29%.

Floating rate Treasury ETFs, on the other hand, hold Treasury floating rate notes that always reflect the latest 3-month T-bill rate, which resets every week. In simple terms, you are always getting the most up-to-date 3-month T-Bill rate by holding these ETFs. As interest rates rise, floating rate Treasury ETFs pay higher interest payments. If rates fall, the payments decrease.

The most popular floating rate Treasury ETFs are USFR (WisdomTree Floating Rate Treasury Fund) and TFLO (iShares Treasury Floating Rate Bond ETF). USFR has a yield of 5.39% and a year-to-date return of 4.46%, while TFLO has a yield of 5.36% and a year-to-date return of 4.49%.

So why would buy Fidelity money market funds instead of ultra short-term bond ETFs? The rates offered by ultra short-term bond ETFs have higher yields than Fidelity money market funds, are easier to buy than T-Bills, and are more liquid than brokered CDs.

The answer is if you need access to immediate cash. Fidelity money market funds instantly settle and offer more liquidity.

ETFs, including ultra short-term bond ETFs, usually have a settlement period of two business days (referenced as T+2), which means cash will be available in your account two days after you sell. While traditional money market funds have a settlement time of one business day (T+1), Fidelity treats its own money market funds as cash. That means Fidelity money markets settle the day you sell (T+0). Fidelity customers can “sweep out” of any Fidelity money market fund to access cash instantly, or to purchase another investment.

To learn more about ultra short-term ETFs, check out the following articles:

Comparing Our Cash Returns Options on Fidelity

We’ve now reviewed the main types of investments to consider for higher cash returns on Fidelity: money market funds, Treasury bills, CDs, and ETFs.

To compare your options on Fidelity, we put together the table below that compares each investment’s yield, fees and costs, minimum investments, “sweep” features, and tax benefits if any.

Best viewed on the desktop for a full comparison. Data as of November 2023.

To sum it all up, simply moving your cash from your bank to Fidelity is a huge win. You don’t even need to do anything to automatically earn SPAXX returns with Fidelity’s automatic sweep feature.

But if you want to generate even more yield while still being liquid, Treasury bills and ultra short-term bond ETFs are good options. And brokered CDs on Fidelity generate the highest cash yield of all at the moment.

We hope you will find a way to put your cash to work with our guide. The biggest loser would be to keep your cash in your bank account!