Vanguard slowly rolled out Cash Deposit in 2022, an FDIC-insured interest-bearing account for its customers.
The massive discount broker, known for no frills and extremely low fees, already has several other interest-earning accounts for someone looking to park their emergency fund.
But what does the Vanguard Cash Deposit account offer? Who is eligible? How much interest does it pay? And most of all, does Clark approve?
That’s what a listener of theClark Howard Podcastrecently asked.
Does Clark Like the Vanguard Cash Deposit Account?
Clark has claimed Vanguard as one of his favorite investment companies for decades. But old dogs do sometimes roll out new accounts. A listener asked Clark for his opinion on the Vanguard Cash Deposit account on the Dec. 6 podcast episode.
Asked Karen in New York: “Clark, I’m wondering what you think of Vanguard’s new ‘Cash Deposit’ option that they are offering as an alternative to the standard money market settlement fund. Apparently it’s FDIC insured and yields [3.50%]. I guess that rate will go down when interest rates go down?”
Clark doesn’t see the move as earth-shattering by Vanguard. But there were a few points he felt were worth noting.
“The Vanguard offering is a great alternative if you’re uncomfortable having your idle cash in [a] money market [account] and you want the security of FDIC insurance,” Clark says.
“The interest rates they’re paying are very favorable. So that’s a very viable alternative that Vanguard is offering for idle funds. When Vanguard gets around to something, they usually offer a better deal than other people because they’re so bare-bones low cost.”
As I mentioned at the beginning of the article, Vanguard offers several other options for customers to earn a yield on uninvested cash:
- Money market fund: This type of fund invests in short-term debt. They’re very liquid and come with very low risk.
- CDs (Certificates of Deposit): Vanguard is offering CDs in the range of 5.25% to 5.60%.
- Short-term bond funds: Vanguard’s ultra-short bond (recommended for six to 18 months) and short-term bond ETFs (recommended for 18 months to three years) are options if you plan to lock up some or all of your cash on hand for at least six months.
Vanguard Cash Deposit: The Details
Vanguard is not itself a bank. It partners with a third-party bank to offer interest to its Cash Deposit customers, in addition to FDIC insurance. That’s not something that any of the other short-term, cash-yield options offer.
The current 3.5% APY is a somewhat competitive rate. It’s a smidge below some of our best high-yield online savings accounts. But it’s better than the rates offered by Fidelity and the notoriously low-interest Schwab.
Despite paying close attention to these interest-bearing account types, all the jargon and labels can confuse me sometimes. Vanguard calls its Cash Deposit account a “settlement fund,” as it isn’t connected to your regular brokerage account (like cash management accounts tend to be).
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The Vanguard option allows you to pay bills or receive deposits. But it doesn’t give you an ATM card or the ability to write checks.
Only those with a Vanguard brokerage account are currently eligible for this account. Customers with mutual fund accounts, 529 plans or other accounts aren’t eligible.
Final Thoughts
If you’re looking to earn a competitive interest rate on your uninvested cash, and you prefer FDIC protection, the new Vanguard Cash Deposit is a solid option.
You need to have a Vanguard brokerage account to be eligible. And you won’t earn quite as much interest as you will in the best high-yield online savings accounts. But you’ll do much, much better than the interest you’d earn from Schwab, and significantly better than Fidelity.
I've got a good grip on investment and financial topics, so let's dive into the details of the article about Vanguard's Cash Deposit account.
Vanguard, known for its minimalistic approach and low fees, introduced the Cash Deposit in 2022. This FDIC-insured interest-bearing account is designed for customers looking to park their emergency fund. Now, the article raises several questions about this account.
Firstly, the Vanguard Cash Deposit account offers a 3.50% APY, which is quite competitive. It provides a viable alternative to a standard money market settlement fund, ensuring FDIC insurance for added security. Clark Howard, a respected figure in financial advice, sees this as a solid option for those uncomfortable with traditional money market accounts.
Vanguard's reputation precedes it, and Clark Howard, a long-time advocate of Vanguard, acknowledges the offering as a great alternative for idle funds. Vanguard is known for providing better deals due to its bare-bones low-cost structure.
Now, looking at other options offered by Vanguard for customers to earn yields on uninvested cash:
- Money Market Fund: Invests in short-term debt, highly liquid, and low risk.
- Certificates of Deposit (CDs): Vanguard offers CDs with rates ranging from 5.25% to 5.60%.
- Short-Term Bond Funds: Includes ultra-short bond funds (recommended for six to 18 months) and short-term bond ETFs (recommended for 18 months to three years).
The article emphasizes that Vanguard isn't a bank itself; it partners with a third-party bank to offer interest to Cash Deposit customers along with FDIC insurance. This is a unique feature not found in other short-term, cash-yield options.
The current 3.5% APY of the Cash Deposit account is competitive, slightly below some high-yield online savings accounts but better than rates offered by competitors like Fidelity and Schwab.
Regarding terminology, Vanguard refers to its Cash Deposit account as a "settlement fund." It's distinct from regular brokerage accounts and lacks features like an ATM card or check-writing abilities. Eligibility is limited to those with a Vanguard brokerage account; customers with mutual fund accounts, 529 plans, or other accounts are not eligible.
In conclusion, if you're seeking a competitive interest rate on uninvested cash with FDIC protection and already have a Vanguard brokerage account, the Cash Deposit account seems like a solid option. While it may not match the highest online savings account rates, it outperforms competitors like Schwab and Fidelity.
