The quick answer
It doesn’t matter because you shouldn’t be holding cash in your Roth IRA anyway. So just pick SPAXX and go on with your life. 😀
If you’re using Fidelity, you might see a button like this:
That looks tempting, so you click on it and see something like this:
So you have some options! Let’s break it down.
What is a “core position”?
When you open an investment account, like a brokerage account or a Roth IRA, the idea is that you put money into the account then use that money to buy investments (like mutual funds, ETFs, stocks, etc). But when there is money in there that hasn’t been used yet to buy an investment, it sits in the “core position”. Which is basically just cash sitting there, like a savings account. Since Fidelity is a full-featured brokerage, they give you a few different ways to hold the cash. That’s what this choice is all about.
Why this doesn’t matter!
Since the point of an investment account is to invest, you generally shouldn’t have money just sitting around in cash. This is especially true for young people inside of a retirement account like a Roth IRA. If you have money sitting in your core position in your Roth IRA, you’re likely making a big mistake. You want to invest that money in something like a target date index fund. And since you’ll have no money in your core position, it doesn’t really matter what your core position is! That said, let’s break it down anyway.
- SPAXX: This is a money market fund. Basically a mutual fund (a fund that pools everyone’s money) that invests in cash and cash-like stuff… like CDs. It historically offers better interest rates than just sitting in a bank account while still being very liquid and safe (so it won’t go down in value and you can get your money out any time). CURRENTLY, SPAXX is paying 0.01%. That’s true for almost every cash account because rates are so low.
- FCASH: FCASH is not a money market fund. It is a free credit balance, which means it consists of uninvested cash that can be withdrawn on demand at any time. Fidelity may borrow this money and use it for their business. As of today, the FCASH account is also paying… you guessed: 0.01%.
- FZFXX: This is extraordinarily similar to SPAXX. The yield and historical yield are almost identical. Frankly, I think it’s silly for Fidelity to offer both as it serves to confuse people without giving an actual meaningful benefit. And yep, FZFXX is also paying 0.01%.
The bottom line
So, as you can see this really isn’t an exciting choice to make. Historically, and possibly in the future, I think SPAXX and FZFXX will have slightly higher interest than the FCASH account, so that’s what I would choose. But as I said above it really doesn’t matter. Just pick one and go on with your life.