Vanguard does not offer high yield savings accounts
Vanguard is an investment company, not a bank. They do not hold deposit accounts, checking accounts, or savings accounts of any kind. If you are looking for a high yield savings account, you will need to open one at a bank or credit union, not through Vanguard.
Vanguard does offer money market funds and sweep accounts that hold cash, but these are not the same as a savings account. Money market funds invest in short-term debt securities and their returns fluctuate. A sweep account automatically moves uninvested cash into a money market fund or similar vehicle. Neither one is a deposit account protected by FDIC insurance.
If you have cash sitting in a Vanguard brokerage account and want it to earn interest, Vanguard will move it into a settlement fund by default. The rate on these funds changes frequently and is typically lower than what you would find at a bank offering high yield savings.
Key Takeaways
- Vanguard is an investment firm and does not operate bank deposit accounts or savings accounts.
- Cash held in a Vanguard brokerage account goes into a money market settlement fund, which earns interest but is not FDIC insured.
- High yield savings accounts are offered by banks and credit unions, not investment companies.
- If you want both investment accounts and a high yield savings account, you will need to open accounts at two separate institutions.
Where Vanguard customers can hold cash
Vanguard offers a few places to park cash within your brokerage account. The default is a Vanguard money market settlement fund, which holds your uninvested cash and pays interest. The rate varies based on market conditions and is set by Vanguard. You can check the current rate on Vanguard's website, but it typically lags behind what banks offer for high yield savings.
Vanguard also offers a cash management feature through a partnership with banks. This allows you to earn interest on cash held in your Vanguard account through a network of partner banks. The rate is competitive with some high yield savings accounts, but the money is still held within your brokerage account structure, not as a traditional bank deposit.
If you want FDIC insurance on your savings, you cannot use Vanguard. You must open a separate account at a bank or credit union that offers high yield savings.
How high yield savings accounts differ from Vanguard's cash options
A high yield savings account is a deposit account at a bank or credit union. Your money is insured up to $250,000 per account owner per institution by the FDIC (or NCUA for credit unions). The interest rate is fixed or adjusts based on the federal funds rate, and you can withdraw your money at any time without penalty.
Vanguard's money market funds and settlement accounts are not deposit accounts. They are investments. The value can fluctuate slightly based on the underlying securities held in the fund. While the risk is very low, it is not zero. Your money is not FDIC insured.
High yield savings accounts typically offer rates between 4% and 5% APY, depending on the bank and current market conditions. Vanguard's settlement funds and cash management rates are often lower. If earning the highest possible interest on your savings is your goal, a bank high yield savings account will usually outperform Vanguard's options.
Why someone might use Vanguard for cash instead of a savings account
If you are an active investor who buys and sells stocks, bonds, or funds regularly, keeping cash in your Vanguard account makes sense. You avoid the delay and fees of transferring money in and out of a separate bank account. The cash earns some interest while it waits to be invested.
Vanguard's cash management feature can also be useful if you want to keep all your money in one place for simplicity, even though it is not a true savings account. Some investors prefer this for ease of tracking and consolidated statements.
However, if your primary goal is to save money and earn interest without investing, a high yield savings account at a bank is the better choice. It offers higher rates, FDIC protection, and no connection to investment accounts.
How to find a high yield savings account if you bank with Vanguard
You can open a high yield savings account at any bank or credit union, regardless of whether you have a Vanguard brokerage account. Online banks like Marcus, Ally, American Express Personal Savings, and Wealthfront Cash Account all offer high yield savings with competitive rates. Credit unions also offer high yield savings, sometimes at rates comparable to online banks.
To compare rates, visit each bank's website directly or use a rate comparison tool. Rates change frequently, so check the current APY before opening an account. Make sure the bank is FDIC insured by looking for the FDIC logo or searching the FDIC's bank finder tool.
Opening a high yield savings account takes 10 to 15 minutes online. You will need your Social Security number, a government ID, and proof of address. Once approved, you can link it to your Vanguard account or any other bank account to transfer money in and out.
Moving money between Vanguard and a high yield savings account
If you decide to open a high yield savings account elsewhere, you can link it to your Vanguard brokerage account and transfer money between them. Vanguard allows ACH transfers to and from external bank accounts. An ACH transfer typically takes 1 to 3 business days to complete.
You can also withdraw cash from Vanguard via check or wire transfer, though wire transfers usually cost $15 to $25. ACH is free and faster than a check, so it is the most practical option for regular transfers.
Some investors keep a small amount of cash in Vanguard for immediate trading needs and maintain a separate high yield savings account for longer-term savings. This approach gives you the best of both: quick access to cash for investing and a higher interest rate on money you are not planning to invest soon.
Frequently Asked Questions
Can I earn interest on cash in my Vanguard account?
Yes. Vanguard automatically places uninvested cash into a money market settlement fund that earns interest. You can also use Vanguard's cash management feature to earn interest through partner banks. However, these rates are typically lower than what banks offer for high yield savings accounts.
Is money in a Vanguard money market fund FDIC insured?
No. Money market funds are investments, not bank deposits. They are not covered by FDIC insurance. The risk is very low because the funds hold short-term, high-quality debt, but there is no government may provide on your principal.
Can I use Vanguard as my primary savings account?
Technically yes, but it is not recommended if your main goal is to save money and earn interest. Vanguard is designed for investing. If you want FDIC protection and the highest interest rates, open a high yield savings account at a bank instead.
What is the current interest rate on Vanguard's settlement fund?
Vanguard's settlement fund rate changes frequently based on market conditions. You can find the current rate by logging into your Vanguard account or calling Vanguard directly. The rate is usually lower than high yield savings accounts offered by banks.
Do I need to choose between Vanguard and a high yield savings account?
No. You can have both. Many investors maintain a Vanguard brokerage account for investing and a separate high yield savings account at a bank for emergency savings or money they are not ready to invest yet.