You don't have to shift your money to an unknown online bank's savings account to get a solid insured yield on your cash. Vanguard will do it — but only if you know where to look.
Vanguard's Cash Plus Account offers a 4.7% annual yield on deposited cash. And it comes with $1.25 million in FDIC coverage for individual accounts. That's a compelling FDIC-insured yield compared with traditional high-yield banks. And it's miles ahead of what major banks pay.
But you must sign up for the account.
Why Vanguard Cash Plus Savings Account Is Worth It
Why is the Vanguard Cash Plus saving account worth the trouble?
A dirty little secret in the brokerage industry is your uninvested cash is getting next to no return.
E-Trade, for instance, sweeps any cash in your brokerage account into a Bank Deposit Program. But you only get paid 0.01% annually on cash amounts up to $499,999. It's not FDIC insured, either. And even at Charles Schwab, the FDIC-insured Schwab Bank Investor Savings account only pays 0.48% annually. Schwab pays higher rates on CDs, but those lock up your cash for 30 days or more. And Schwab's money-market options are not FDIC insured.
The workaround has been moving money to online, high-yield accounts. But better known banks, like Discover Financial, are paying just 4.25%. You can get higher FDIC-insured rates, but usually at smaller banks. Brio Direct, a unit of Webster Bank, pays 5.35%. Webster Bank is a unit of Webster Financial.
Vanguard Savings Account Details
The Vanguard Cash Plus Account has no fees and no minimum balance. And the FDIC insurance stretches to $2.5 million for joint accounts.
The default savings account rate is 4.7%. You also can freely move the cash in the Vanguard savings account anytime you want to another account with ATM access. It's important to note, though, you don't get checks or an ATM card.
You might not think the difference in savings account rates matters. But it makes a huge difference in terms of dollars. Keeping $100,000 parked at E-Trade will generate just $10 in the first year in interest. That same $100,000 at 4.7% generates nearly $5,000 in the first year.
Don't give your brokerage a low-cost loan.
Higher Interest Rates Make A Huge Difference
A savings rate of 4.7% puts extra $25,765 in your pocket in 40 years vs. 0.01%
| Years | Value of $100,000 at 0.01% | Value of $100,000 at 4.7% | Difference |
|---|---|---|---|
| 1 | $100,010 | $104,700 | $4,690 |
| 10 | $100,020 | $109,620 | $9,600 |
| 20 | $100,030 | $114,773 | $14,743 |
| 30 | $100,040 | $120,167 | $20,127 |
| 40 | $100,050 | $125,815 | $25,765 |
