Vanguard Cash Sweep Account Options
If you’re depositing cash into your Vanguard brokerage account, you have lots of options and only one option. The broker only provides one settlement fund for free
cash balances. It is the Vanguard Federal Money Market Fund, Investor Class (VMFXX). However, the broker also allows its customers to completely bypass this core
position and send an ACH deposit directly into any Vanguard mutual fund. The company offers more than 300 of them.
Keep in mind that a mutual fund receiving a deposit doesn’t have to be a money market fund. It can be any Vanguard mutual fund, including equity funds. Your ACH
deposit will go straight to the fund you select, without ever entering the default cash position.
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Vanguard Cash Sweep Interest Rates
VMFXX does have a yield right now of 0.04%. Investors who aren’t satisfied with this could choose a short-term bond fund like VBISX, the Vanguard Short-Term Bond
Index Fund. This security is currently yielding about 0.25%.
Other Vanguard Cash Sweep Options
Unfortunately, Vanguard does not offer any type of an FDIC-insured bank sweep program. This service moves money that is sitting in a brokerage account’s cash position
to a bank where it earns interest and is fully insured by the U.S. federal government. Several brokers do offer some type of bank sweep program. Fidelity,
TD Ameritrade, and Schwab all offer sweep cash services, although the individual programs differ from each other.
Comparison
Majority of brokerage firms offer very low interest on investors' uninvested cash. TD Ameritrade's cash sweep rates, for example, are
0.01%.
Ally Invest offers the highest in the industry rate
of 0.5% APY on its online savings account that could easily be linked to its brokerage account.
M1 Finance
offers a checking account that comes with 1% APY.
However, that checking is part of the broker's
M1 Plus program which costs $125 a year.
Vanguard Cash Sweep Insurance
Vanguard also does not provide an option to deposit money into a brokerage account and leave it as cash. Deposits are always sent to a Vanguard fund.
One advantage of this policy, however, is that SIPC (the major insurer of U.S. brokerage accounts) offers $500,000 of protection for securities,
but only $250,000 of insurance for cash. Technically, there are no cash positions at Vanguard, so customers don’t have to worry about the lower
cash limit.
Buying Vanguard Federal Money Market Fund Rates
If you decide to deposit funds into a Vanguard mutual fund besides VMFXX, you will need to move at least $3,000 or already have the fund open. The
funding process is fairly straightforward. You don’t need to sign up or enroll in anything. Just click on ‘My Accounts’ in the top menu of the website,
then select ‘Buy & Sell’. Next, choose ‘Buy Vanguard funds’. You will be given an option here of choosing either the Federal Money Market fund or
another Vanguard mutual fund.
After you have made a selection, you can choose to move funds electronically from an external bank account or mail in a check. The brokerage house will
also accept exchanges from another Vanguard fund.
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VanguardAdvantage Account
Cash management features are available with VanguardAdvantage, the closest thing to a bank account the company offers. It comes with checks and a Visa Gold debit card.
Bill pay is also available. Unfortunately, half a million dollars in assets is required to open this account. Even with this balance, the broker charges a $30 annual
fee and $9.95 for checkbook reorders.
Comparison to Other Brokers
The Vanguard website is more difficult to navigate than TD Ameritrade's and Fidelity's websites.
TD Ameritrade also has a very good browser-based trade ticket, which the Vanguard site lacks. The Fidelity mobile app has better market news than
Vanguard's app. Charles Schwab's app offers live streaming of CNBC at no cost. Investors also can't trade non-Vanguard mutual funds on the broker's app.
On the TD Ameritrade's app, in comparison, all mutual funds can be traded.
Vanguard's commission schedule for large accounts and infrequent traders is decent compared to other brokers. For example, TD Ameritrade charges $0 for
all accounts, and Ally Invest customers pay $0.
Vanguard Automatic Investing
At Vanguard automatic investments are free for mutual funds that come with transaction fee. There is a $3 per trade charge for other funds.
Minimum purchase is $100.
Automatic investment program for ETFs is not available. Vanguard also does not offer any automatic investment programs for stocks.
Vanguard has excellent mutual funds and ETF's that will appeal to many investors. Although it has a complicated commission schedule, clients with large
accounts can do well here. Traders who need advanced trading tools will do better with another broker.
Vanguard offers reduced commissions and other brokerage benefits to investors who have $50,000 or more invested in Vanguard funds. This policy might appeal to
long-term fundamental investors who have this amount to put in Vanguard products.
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