The Federal Reserve has cut its target rate by 75 basis points over the past year, from 4.5% to 3.75%, and yet 3-month Treasury bills still yielded 3.87% on August 12, 2026. That is the quiet backdrop for Fidelity Government Cash Reserves (FDRXX), the money market fund sitting in millions of Fidelity brokerage accounts as either a core position or a parking spot between trades. Most owners have never opened its fact sheet. It is doing more portfolio work than they think.
What FDRXX Actually Holds
FDRXX is a government money market fund. Under SEC Rule 2a-7, it must invest at least 99.5% of assets in cash, U.S. government securities, and repurchase agreements collateralized by those securities. The portfolio is a rolling ladder of very short Treasury bills, agency paper, and overnight repos backed by Treasuries. The fund aims for a stable $1.00 share price, though that is a goal, not a guarantee.
Because holdings reset constantly, the fund’s yield tracks the front end of the Treasury curve in near real time. When the Fed hikes, the yield climbs within weeks; when the Fed cuts, it falls just as quickly.
The Rate Environment Doing the Heavy Lifting
The Fed funds target upper bound has been held at 3.75% since December 10, 2025, an eight-month pause after three consecutive cuts. That stable ceiling lets short-dated Treasuries clear near current yields. As of August 12, 2026, the Treasury curve’s short end printed 3.78% at 1 month, 3.87% at 3 months, and 3.97% at 6 months. A government money market fund earns that band, minus expenses.
On a $50,000 cash balance, a yield in the high-3s throws off well over $150 a month in interest. Compare that with the FDIC national average 12-month CD rate of 1.68% as of July 1, 2026, and the appeal of leaving cash inside a money market fund rather than a bank savings account becomes obvious.
How It Fits Alongside Other Fidelity Core Positions
Fidelity offers several government money market funds as core cash positions. FDRXX is the default sweep for retirement and older brokerage accounts; SPAXX is the default for newer taxable accounts; FDLXX leans more heavily into direct Treasury holdings, which can matter for state tax purposes. All three are high-quality, ultra-short, government-only. Yields typically move together within a few basis points. Fidelity publishes each fund’s 7-day yield on its product page.
The Tradeoffs
The yield is not locked in. If the Fed resumes cutting, FDRXX’s payout drifts down with T-bill rates. The 10Y-2Y Treasury spread of 0.48% on August 12, 2026 sits well above inversion, but the yield curve has been steepening off a June 22, 2026 low of 0.27%, signaling long-term expectations are firming while the front end could still ease.
Interest is taxed as ordinary income at the federal level. A portion from direct Treasury holdings may be exempt from state and local tax, but the exact share varies year to year. Investors in high-tax states sometimes prefer a Treasury-only fund for that reason.
With the VIX at 14.55 on August 12, 2026, in the bottom 4.3% of its 12-month range, markets are calm and risk assets have rewarded investors. Cash in FDRXX serves a preservation role while equities compound.
Who This Fund Suits
FDRXX earns its keep for money you need within one to two years: emergency reserves, a house down payment, quarterly tax set-asides, or brokerage cash waiting on a buy order. It also makes sense for retirees holding a cash bucket to fund near-term withdrawals without touching stocks in a down year. Investors with a decade-plus horizon have better options; leaving too much long-term capital in a money market fund is a classic drag on retirement outcomes.
Related Funds Worth Researching
- Fidelity Government Money Market Fund (SPAXX): Fidelity’s core-position government money market fund, invests in Treasuries and government repos.
- Fidelity Treasury Only Money Market Fund (FDLXX): tilts toward direct Treasury holdings, improving state-tax treatment for investors in high-tax states.
- Fidelity Money Market Fund (SPRXX): a prime money market fund holding commercial paper alongside government paper, typically offering a slightly higher yield in exchange for modestly higher credit risk.
- Vanguard Federal Money Market Fund (VMFXX): the equivalent core cash position for Vanguard brokerage accounts and the natural comparison for investors splitting assets between brokerages.
Contact [email protected] for any questions or corrections.
Top Gaining Stocks
Top Losing Stocks