“Is my money safe?” In normal times, that’s not a question I hear very often. But with two large regional banks collapsing in the same weekend in March, my inbox suddenly became full of variations on that theme.
I shared my initial thoughts in March, but the short answer is that I believe our investments and cash are safe at Vanguard. However, the banking fallout seemed like a prime opportunity to dig deeper into Vanguard’s various cash-management solutions.
In this article I’m going to discuss Vanguard’s “immediate cash” options. In my book, that means investments or accounts that provide daily liquidity and dollar-in/dollar-out services. Specifically, I’m going to talk about Vanguard’s money markets and the two cash FDIC-insured sweep-account products that Vanguard is currently testing—Cash Deposit and Cash Plus Account.
As I’ve said before, for short-term spending needs (think 12 to 36 months from now) or your rainy-day fund, an ultra-short-term bond fund can make sense. I’d put CDs (certificates of deposit)—which you can buy through Vanguard, by the way—in the mix for that purpose, too, since you don’t typically have daily liquidity with a CD. Let’s put those aside for now and limit our conversation to “cash” cash, or instant cash.
- Vanguard’s money market funds are rock solid
- Stick with Federal Money Market over Cash Deposit for your settlement fund
- Cash Plus Account has potential but is not ready for consumption
Tried and True
When’s the last time you talked money markets over cocktails? Well, believe it or not, money market funds have suddenly gone from boring to bodacious.
With banks failing and the survivors still paying paltry yields on checking and savings accounts, savers have flocked to money market funds. Yields there have marched higher over the past year as the Federal Reserve (Fed) hiked short-term interest rates from the near-zero bound to 5%. Vanguard’s three taxable money market funds—Treasury Money Market (VUSXX), Federal Money Market (VMFXX) and Cash Reserves Federal Money Market (VMRXX)—pulled in over $30 billion in net new cash during the first quarter. About $20 billion of that flooded in in March alone!
I’ve got a few important points I want to make about money market funds. They deal with safety and yields.