Of course! Here is a very lengthy and detailed guide on how to buy CDs through Vanguard online.
Ready to Boost Your Savings? Here's Your Step-by-Step Guide to Buying CDs with Vanguard!
Are you looking for a low-risk, predictable way to grow your money? Certificates of Deposit (CDs) can be an excellent option, and Vanguard, a leader in low-cost investing, offers a wide selection of "brokered CDs" that can provide competitive yields. But what exactly are brokered CDs, and how do you buy them online through Vanguard? Let's dive in and walk through the entire process, from opening an account to placing your first order.
Step 1: Get Your Vanguard Brokerage Account Ready
Before you can even think about buying a CD, you need a place to hold it. With Vanguard, that's a Vanguard Brokerage Account. If you don't have one yet, don't worry, the process is straightforward.
1.1: If you don't have a Vanguard account: Head over to the Vanguard website and click on "Open an account." You'll be prompted to provide some personal information, such as your Social Security number, address, and employment details. This is a crucial step to ensure your account is properly set up and secure. It's a small investment of your time that pays off big in the long run.
1.2: Fund your account: Once your brokerage account is open, you need to fund it. You can do this by linking an external bank account and initiating an electronic bank transfer (ACH), or by making a wire transfer. Make sure you have enough money in your linked bank account to cover the cost of the CDs you plan to buy. Keep in mind, Vanguard brokered CDs have a minimum investment of $1,000, and you must buy them in increments of $1,000.
Step 2: Navigate to the Fixed Income Section
Now that your account is funded, let's go shopping for some CDs!
2.1: Log in to your Vanguard account: Go to the Vanguard website and log in using your username and password. If you haven't set up online access yet, you'll need to do that first.
2.2: Find the "Trade" or "Invest" tab: On your account's dashboard, look for a menu or tab that says "Trade," "Invest," or something similar. This is where you'll find the tools to buy and sell various investments.
2.3: Select "Bonds & CDs": Within the trading section, you'll see a list of investment types. Choose "Bonds & CDs" or "Fixed Income." This will take you to the fixed-income trading platform where you can search for and purchase CDs.
Step 3: Search for and Select the Right CD for You
This is where the fun begins! Vanguard gives you access to brokered CDs from a wide network of banks across the country, so you have plenty of options to choose from.
3.1: Use the CD search tool: On the fixed-income trading platform, you'll find a search tool or screener. You can filter the available CDs by a variety of criteria, including:
Term (Maturity Date): Do you want a short-term CD that matures in a few months, or a long-term one that locks in a rate for several years? You'll find options ranging from a few months to 10+ years.
Interest Rate (APY/Yield): Sort by the highest yield to find the most competitive rates available.
Issuing Bank: You can even see which bank is issuing the CD.
Callable vs. Non-Callable: This is a crucial distinction. A callable CD can be redeemed (or "called back") by the issuing bank before its maturity date. This often happens if interest rates fall, and the bank wants to stop paying the higher rate. A non-callable CD cannot be called back by the bank, giving you a locked-in rate for the entire term. For most investors, non-callable CDs are the safer and more predictable option.
3.2: Review the details: Once you've found a CD that looks promising, click on it to see the full details. Pay close attention to these key pieces of information:
Yield to Maturity (YTM): This is the total return you can expect to receive if you hold the CD until it matures.
Minimum Investment: As mentioned, this is typically $1,000.
Settlement Date: This is the date when your trade is finalized and you officially own the CD.
FDIC Insurance: All brokered CDs available through Vanguard are FDIC insured up to $250,000 per depositor, per bank, in case of a bank failure. This is a significant safety feature.
3.3: Select the quantity: Once you're ready to buy, enter the amount you want to invest in increments of $1,000. For example, if you want to invest $5,000, you would enter "5."
Step 4: Place Your Order and Confirm
This is the final step where you make your purchase.
4.1: Review your order: Before you submit, a summary of your order will appear. Double-check all the details: the CD's term, rate, issuing bank, and the total amount of your purchase.
4.2: Submit the order: Click on the "Submit" or "Buy" button to place your order. You'll receive a confirmation, and the funds will be debited from your brokerage account's settlement fund on the settlement date.
4.3: Monitor your investment: After the trade settles, you'll be able to see your new CD holding in your Vanguard account. The interest you earn will typically be paid out periodically (e.g., semi-annually or annually) and deposited into your brokerage account's settlement fund, where it can be reinvested or used as you see fit. Unlike traditional bank CDs, the interest on brokered CDs does not compound within the CD itself.
Step 5: Consider a CD Ladder (Optional, but Smart!)
Now that you know how to buy a single CD, you can build a CD ladder. This is a popular and effective strategy to get the benefits of long-term rates while maintaining some liquidity.
5.1: How it works: Instead of putting all your money into one CD with a single maturity date, you divide your investment into multiple CDs with staggered maturity dates. For example, if you have $20,000 to invest, you could buy:
$5,000 in a 1-year CD
$5,000 in a 2-year CD
$5,000 in a 3-year CD
$5,000 in a 4-year CD
5.2: The advantage: When the 1-year CD matures, you get your principal back. You can then reinvest that money into a new 4-year CD (or whatever the longest term in your ladder is). This way, every year a portion of your money becomes available, and you always have funds maturing, giving you liquidity and allowing you to take advantage of new, potentially higher rates.
10 Related FAQs
How to find the best CD rates on Vanguard?
You can find the best CD rates by using the fixed-income trading platform's search filter and sorting by the highest yield. This will show you the most competitive rates from the network of banks Vanguard works with.
How to check the maturity date of my CD?
You can check the maturity date of your CD by logging into your Vanguard brokerage account and navigating to your investment holdings. The details of each CD, including its maturity date, will be listed there.
How to sell a brokered CD before it matures?
Unlike traditional bank CDs with early withdrawal penalties, brokered CDs can be sold on the secondary market before maturity. However, the market value can fluctuate based on interest rate changes, so you may receive more or less than your original principal.
How to know if a CD is callable?
When you are searching for CDs on the Vanguard platform, the details for each CD will clearly indicate whether it is "callable" or "non-callable." It's important to check this before you buy.
How to avoid the Vanguard brokerage account service fee?
Vanguard charges a $25 annual account service fee for brokerage accounts. You can often avoid this fee by opting for electronic delivery of all your account documents.
How to reinvest my CD principal when it matures?
When a brokered CD matures, the principal and any final interest payment are automatically deposited into your Vanguard brokerage account's settlement fund. You must then manually place a new order to reinvest in another CD.
How to build a CD ladder with different terms?
You can build a CD ladder by buying multiple CDs with different maturity dates. For example, you can buy a 1-year, 2-year, 3-year, and 4-year CD at the same time and then reinvest the maturing funds into the longest available term to keep the ladder going.
How to tell the difference between brokered CDs and bank CDs?
Brokered CDs are purchased through a brokerage like Vanguard from a network of banks, are tradeable on the secondary market, and don't have early withdrawal penalties (but can be sold at a loss). Bank CDs are bought directly from a single bank, have early withdrawal penalties, and are not tradeable.
How to ensure my CD is FDIC-insured?
When you purchase a brokered CD through Vanguard, it is issued by an FDIC-insured bank. Your investment is covered up to the standard FDIC limit of $250,000 per depositor, per bank, in the event of a bank failure.
How to transfer money to my Vanguard brokerage account to buy a CD?
You can transfer funds to your Vanguard brokerage account by linking an external bank account and initiating an electronic transfer (ACH), or by using a wire transfer. Make sure the funds are settled in your account before you place a trade.