Fidelity offers dozens of money market mutual funds, including many with similar sounding names. Two of the largest funds in the marketplace today are the Fidelity Government Money Market Fund (SPAXX) and the Fidelity Money Market Fund Premium Class (FZDXX). Comparing SPAXX vs FZDXX may be confusing because the name and fund details are similar, although there is one important difference.
The Short Answer
When comparing FZDXX vs SPAXX, the main difference is that FZDXX is a prime fund while SPAXX is a government fund. This means that SPAXX primarily owns government-backed securities, while FZDXX owns all types of assets. Therefore, FZDXX is theoretically riskier and generates a higher yield.
SPAXX vs FZDXX Historical Performance
Since their common inception, FZDXX has outperformed SPAXX by over .30% annualized. This has compounded to a 2.51% cumulative difference over the past 7 years. FZDXX currently yields nearly .20% more than SPAXX, so I would expect this outperformance to continue. It is not uncommon for prime funds to outperform their non-prime counterparts.
Current Yields for FZDXX & SPAXX
The current 7 day yield is a standardized yield metric for money market mutual funds and the 7 day yields for both SPAXX and FZDXX can be found on the fund’s webpages. See here for SPAXX and here for FZDXX.
What rate is SPAXX & FZDXX paying?
The current interest rate for SPAXX, FZDXX, and other Fidelity money markets can be found on Fidelity’s money market page.
SPAXX & FZDXX Details
The expense ratio is .42% for both SPAXX and .30% for FZDXX. Neither fund charges a load or 12b-1 fees.
SPAXX does not have a minimum investment and investors can invest as little as one cent, while FZDXX has a minimum investment of $100,000.
I have not checked every brokerage, but SPAXX and FZDXX are generally only available to clients of Fidelity.
Like most money market mutual funds, investors can sell SPAXX or FZDXX at any time.
SPAXX vs FZDXX Risks
Hypothetically, an investor could lose money with SPAXX or FZDXX, but I personally do not think that is a realistic risk as I believe the fund sponsor or the federal government would intervene if that were about to happen. Technically, it is possible to lose money in FZDXX or SPAXX though.
It is important to note that FZDXX is a prime fund and holds some non-government assets, which have been and are perceived to be riskier than government assets. So, again, hypothetically (and technically) FZDXX is the riskier of the two funds.
As of July 31, 2023, SPAXX’s portfolio was over $275 billion, while FZDXX was over $85 billion.
IS SPAXX or FZDXX FDIC Insured?
No, neither SPAXX nor FZDXX are FDIC insured.
Holdings
The two funds both invest in short-term securities, but SPAXX only invests in goernment-backed securities. As a prime fund, FZDXX invests in non-government debt like commercial paper and CDs. Most of SPAXX’s holdings are in government repurchase agreements (63%) and agency debt (18%) among other things. FZDXX holds 66% in government repurchase agreements and 15% in commercial paper, as well as smaller positions in other government and non-government assets.
Tax Considerations
SPAXX is a government fund, which means that it invests in government securities. FZDXX is a prime fund which means that it can invest in a wider variety of instruments. This means that SPAXX is a bit more tax-efficient for those who are subject to state taxes. However, investors subject to state tax should consider a “Treasury only” fund like FDLXX, since a much greater proportion of the income will be exempt from state tax. Also, taxable investors may find better after-tax yields in municipal (muni) money market funds, which offer tax benefits that may improve investors’ after-tax yield.
Treasuries and Treasury Money Markets
Treasuries are treated very differently than other money market assets (including Treasury repos) for tax purposes. Income from government repos (that both FZDXX and SPAXX own) is subject to state income tax. Income from Treasury bonds is exempt from state income tax. Therefore, FZDXX is generally a better choice for any investor subject to state tax, although a Treasury-only fund would be even better (depending on yields).
Muni Money Market Funds
Investors subject to higher tax rates may consider municipal (muni) money market funds due to the fact the interest is typically exempt from federal income tax (and often from state tax too!).
The caveat with muni money market funds though is that the yields can move up and down A LOT. Therefore, the stated yield that an investor looks up on any given day is not necessarily indicative of the future return. To understand why, read my post on muni money market yields.
Rather than expecting a muni money market fund’s stated yield, I encourage investors to expect the trailing average yield (over the past few weeks). Generally speaking, the after tax returns of munis will only be higher than non-muni money markets for those in the highest tax brackets.
High Balances
Investors allocating more than $100,000 may want to consider the “Premium” share class of SPAXX, which is FZCXX.
Investors allocating less than $100,000 may not be able to buy FZDXX, but may consider SPRXX.
Is SPAXX or FZDXX a Better Fund?
As mentioned above, FZDXX has outperformed in the past and I expect that to continue given the its higher yields. This higher yield comes from holding riskier investments and prime funds are theoretically riskier (I say theoretically because the federal government often intervenes if the financial system is at risk). However, some of of SPAXX’s income is exempt from state tax, so the after-tax yield is higher for investors subject to state taxes. These investors may want to invest in a Treasury only fund like FDLXX though, where they may be able to get a higher after-tax yield and more safety.
