Vanguard, a renowned name in the fund industry, is now stepping into the realm of cash savings. By providing attractive yields on a frequently overlooked asset class, Vanguard aims to become investors’ preferred choice for cash savings.
Previously available exclusively to investors with a brokerage or retirement account, Vanguard has recently opened its Cash Plus Account, a high-yield savings product, to non-Vanguard customers as well. As of August 2023, the Cash Plus Account boasted an annual percentage yield of 4.70%, according to Vanguard.
Andrew Kadjeski, head of brokerage and investments at Vanguard, states, “We saw this as an opportunity to offer a cash product the Vanguard way.”
Aside from offering a high interest rate, the Cash Plus Account comes with FDIC insurance coverage of up to $1.25 million for individual accounts and $2.5 million for joint accounts. It can be utilized for various purposes, including bill payments, direct deposits, and integration with popular payment applications like PayPal and Venmo. Additionally, Vanguard has introduced another cash deposit option called Vanguard Cash Deposit for sweep accounts, which provides an APY of 3.7% (as of August 2023) and offers similar FDIC coverage.
The piloting phase for Vanguard Cash Deposit commenced in January 2022, followed by the introduction of Vanguard Cash Plus in August 2023 to small groups of existing clients.
Although Vanguard has not disclosed the total amount invested in these cash products, a company spokesperson noted the positive response from customers and expressed satisfaction.
Vanguard believes that these new offerings will not only attract new customers seeking higher yields and FDIC protection for their cash but also align with Vanguard’s distinctive approach to financial products.
The Rise of Cash Savings: A New Frontier for Investors
In recent years, the increase in interest rates has prompted investors to closely monitor the returns on their cash. As a result, many have flocked to short-term Treasuries, money-market funds, CDs, and high-yield savings accounts. The data from the Investment Company Institute reveals that the total assets in money-market funds surged from $4.814 trillion on Jan. 4, 2023, to $5.965 trillion as of Jan. 3, 2024.
Furthermore, financial services companies have seized this opportunity, offering attractive yields to draw in new clients. For instance, Goldman Sachs’s Marcus online savings account boasts an impressive 4.5% Annual Percentage Yield (APY), while Wealthfront’s Cash Account allured investors with a substantial 5% APY.
Acknowledging this trend, Vanguard has noticed that its clients maintain significant amounts of cash, often in low-yielding accounts outside of Vanguard. To address this, Vanguard introduced Cash Plus as an addition to its diverse range of offerings. However, it is important to note that Vanguard does not provide a debit card along with this account.
According to Kadjeski, a representative from Vanguard, cash savings are a highly personal investment. Different investors have varying priorities – some prioritize high yield, others seek safety, and some view cash as a complement to their existing investments. Above all, Vanguard’s emphasis lies on the savings aspect.
Kadjeski further asserts that Vanguard views the two cash products as a substantial component of its lineup and envisions them as potentially disrupting the cash management sphere.