So why are people ditching their banks and switching to an account at Fidelity? After all, isn’t Fidelity a brokerage account? How can it replace your bank account?
That’s where most people are mistaken. Although the Fidelity Cash Management account is technically a brokerage account, it also works like a checking account. You get everything you’d expect from a bank account – a routing number, a debit card with ATM access, and mobile check deposit, but it gives you so much more.
This single account can save you and earn you hundreds or thousands of dollars more than a typical bank.
Quietly, it has become the most powerful financial account you can open. In this post, I’ll cover five reasons people are making the switch, a few cons you should know about, and why I still think you need to keep at least one traditional bank account open.
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Higher Yield
Reason number one is the interest rate the Fidelity Cash Management account pays.
If you’re at a big bank like Chase, Bank of America, and Wells Fargo, the yield they pay you is between 0.01 to 0.03% APY. Let’s say you have $10,000. After one year, you’d earn between $1 and $3 – basically nothing.
With Fidelity, you have two options. Because it’s a brokerage account, you can have Fidelity hold your money in a government money market fund called SPAXX. Currently, the yield on SPAXX is 3.30%. That rate is 330 times higher than what a bank like Chase pays.
Because money market funds aren’t FDIC insured, the first question you might have is, “How safe are they?”.
The straightforward answer is that they’re very safe. To put this into perspective, imagine a safety scale from 1 to 10, with 10 being the safest and including things like savings accounts and CDs. A money market fund would be around a 9.9 – only ever so slightly below a 10. I don’t worry at all about keeping my cash in a money market fund, and there are two reasons for that.
The first reason is that although the money isn’t FDIC insured, it has SIPC protection, which protects each customer up to $500,000, of which $250,000 can be in cash.
The second reason is that if we look at what’s actually in SPAXX, we see that it’s filled with U.S. government securities, which are backed by the full faith and credit of the United States. The U.S. government has never defaulted on its debt.
If, for whatever reason, you don’t want to put your money in SPAXX, you can choose to keep it in FDIC-insured deposit accounts. This is where Fidelity holds your money at its partner banks. This option pays a yield of 1.82%, which is lower than SPAXX but still much higher than what the big banks pay.
And here’s the kicker: Your cash can be protected for up to $5 million! Normally, the FDIC insures your money for up to $250,000, but Fidelity increases that coverage to as much as $5 million for a single account. It’s able to do this because Fidelity will send your money to another partner bank once you reach the $250,000 limit.
So, if you’re a super-wealthy person with like $2 million in cash, Fidelity can split that money among eight banks to make sure the entire amount is FDIC-insured.
Because of the lower yield, I’ve never bothered with this option and have always kept my money in SPAXX, especially given how conservative this money market fund is. Regardless of which option you choose, however, the money in your account operates like cash.
The great thing about earning interest in a Fidelity Cash Management Account is that it’s all automatic. The interest you earn is paid out on the first day of every month, and that money is added to your balance so it can earn interest as well.
If you need to spend money, pay your bills, or transfer money to another account, you don’t have to manually move your money from SPAXX into cash. That’s completely automatic too. Whenever you need to use your money, Fidelity immediately converts the amount you need.
This includes taking money out with the ATM card. Speaking of the ATM card, this is one of the best ATM cards you will ever come across.
Best-in-Class ATM Card
There are a couple of things that make the Fidelity ATM card top-tier, in my opinion.
The biggest one is that it’s one of the few ATM cards that offer unlimited global reimbursement of ATM fees.
Unlike your current ATM card, which may be free only when you use an ATM owned by your bank, Fidelity will reimburse your ATM fees regardless of which ATM you use or where you are in the world. This is huge because you can just walk up to any ATM, pull money out, and not have to worry about what that bank is charging.
Travel is a big passion of mine. My wife and I have visited more than 140 countries, and this card has lived up to the hype. I’ve never been charged a single fee for an ATM transaction. There are many places around the world where credit cards aren’t widely accepted, so this benefit is key.
The other thing that makes this card S-tier is that it doesn’t charge a foreign transaction fee.
If you convert U.S. dollars into another currency – whether it’s at a bank, an airport, or a place like Western Union – you’ll definitely get ripped off. Not only will you get hit with a horrible exchange rate, but you’ll also be charged a foreign exchange fee.
You can avoid all of that with the Fidelity ATM card. The only other ATM card I know of that offers this perk is the Schwab Bank Visa Debit Card.
Security
Reason number three is actually a big one, and I don’t think enough people talk about it. It has to do with Fidelity’s security features.
Fidelity offers multiple layers of security, and most importantly, it lets you use an authenticator app for two-factor authentication, or 2FA.
2FA means that in addition to logging in with your username and password, you’ll also need to enter a one-time, six-digit code generated by your authenticator app before you can access your account.
This is much more secure than having a code sent to you by text message because scammers can steal your phone number with a trick called a SIM-swap scam.
I almost lost $100k because of this a couple of years ago. Before that happened, I was like a lot of people – I figured it would never happen to me. But that’s the thing: It doesn’t affect you until it does, and by then, it might be too late.
I wrote a post on this if you’re interested in hearing what happened and, more importantly, learning how to protect yourself. Trust me, it’s better to be safe than sorry.
Fidelity Credit Card
The fourth reason is the Fidelity Visa credit card.
On paper, the Fidelity credit card looks like a typical cash-back card. It has no annual fee and offers unlimited 2% cash back on every dollar spent. But here’s why it’s so much more than that.
Most cards with no annual fee are standard Visa cards, but this one carries the Visa Signature label.
Visa Signature comes with free benefits like a $100 credit for TSA PreCheck or Global Entry, which allows you to move through airport more quickly. This type of benefit is usually reserved for premium cards with annual fees ranging from $95 to $395 a year.
And just like the Fidelity ATM card, this credit card doesn’t charge a foreign transaction fee, so it’s perfect when you’re traveling outside the U.S.
But here’s why it punches way above its weight class.
This card isn’t impressive simply because of the 2% cash back. It’s what happens after that 2% hits your account. The cash back can be automatically deposited into your Fidelity account, turning your account into an investment rocket ship.
If you take that 2% and funnel it into a zero-fee index fund like Fidelity’s ZERO Total Market Index Fund, ticker symbol FZROX, you’re allowing that money to capture the stock market’s historical average return of around 8 to 10%.
Let’s say you spend $3,000 a month on this card. That would earn you $60 in cash back each month. Over 20 years, you’d earn a total of $14,400 in cash back. But if that $60 is invested every month and grows at an average annual rate of 10%, the balance would grow $45,562.
Your 2% card effectively turns into a 6.33% card when you measure it against your original spending.
If you’re 25 years old and you continue doing this for 40 years, your investment could grow to more than $379,000 – a six-figure addition to your nest egg generated entirely from your everyday expenses.
The amount you end up with would be equivalent to an effective return of 26.35% on every dollar you spent during those four decades.
I know some people are going to say, “Well, can’t you do this with any 2% credit card?”
You could, but you would have to earn the cash back, withdraw it to your bank account, transfer it to your investment account, and then manually invest the money.
If you’re a disciplined saver, that’s certainly possible. But for 90% of people, let’s be honest: If that money is sitting in your bank account, you’ll probably spend it.
Wealth Building Machine
Speaking of automation, that brings us to reason number five, and the reason I ditched the big banks.
This account has been a game changer in my personal wealth journey because it has allowed me to save so much time through the power of automation.
Fidelity has an excellent feature called recurring investments, and I’ll show you an example of how it can streamline your personal finances.
If you’re like me, you buy a few stocks and index funds on a regular basis, but you don’t want to submit multiple buy orders every single time. With recurring investments, you can set up your account to buy stocks and index funds on a fixed schedule. That schedule can be weekly, biweekly, or monthly.
Here, you can see that I have a recurring activity in which my Fidelity account buys $10,000 worth of the three funds I selected. If I ever want to change it or create a new recurring investment, I simply click the “Create New Activity” button and enter what I want to buy and how much money I want to invest. The recurring investment will then happen automatically every month until I tell it to stop.
You can take this one step further. For example, maybe you want to invest once every two weeks because you receive a biweekly paycheck. In a situation like this, you can create a recurring activity that directs Fidelity to take a set amount of money from the bank account that receives your paycheck and transfer that cash to Fidelity.
And the automation doesn’t stop there. You can set up automatic payments for monthly bills like your mortgage, utilities, and other credit cards. You can have Fidelity automatically mail paper checks to your landlord. You can even send recurring bank wires.
And all the perks and benefits I just mentioned are free. Fidelity doesn’t charge a monthly service fee, and there’s no minimum balance you need to maintain.
This account is one of the best hybrid investment and bank account you’ll ever come across.
Why You Still Need A Traditional Bank Account
But before you run off and ditch your bank account, here’s why I still keep accounts at traditional banks.
For one, many of you know that I love earning free money by trying out new banks. It’s hard to say no to welcome bonuses when I make more than $4,000 per year from them.
But the reason that’s more relevant to everyone is that although Fidelity supports Venmo and PayPal, it doesn’t support Zelle. More people are using Zelle every day to send money, so that might be an issue if you get rid of all your other bank accounts.
If Zelle isn’t a dealbreaker for you, the second thing to be aware of is that Fidelity doesn’t connect to Plaid. When you use apps or services that need to connect to your bank, many of them use Plaid.
The final reason is that while Fidelity’s interest rate is great, it isn’t actually the account that pays the highest rate, especially in the short term.
There are bank accounts out there offering yields as high as 4.21%. If that’s something you’re interested in, you can check how I rank the best high-yield savings accounts.
