Of course! Here is a lengthy and detailed post on how much interest Vanguard pays on cash, with a step-by-step guide and FAQs.
How Much Interest Does Vanguard Pay on Your Cash? A Comprehensive Guide
Hello, savvy investor! Ever wondered about the cash you're holding in your Vanguard account? Is it sitting there doing nothing, or is it working for you? If you have cash in a brokerage account, it's crucial to understand how it's being handled and what kind of return you can expect. Let's dive in and explore the world of Vanguard's cash options.
Step 1: Understand the Difference Between "Cash" and "Cash Investments"
Before we talk about interest, let's clarify what we're talking about. When you have money in your Vanguard brokerage account that isn't invested in stocks, ETFs, or mutual funds, it's often referred to as "cash." But this isn't just sitting in a regular checking account. Vanguard automatically places your uninvested cash into a "settlement fund". This is a critical distinction! It's not a regular bank account; it's a type of money market fund designed for liquidity and stability.
So, what's your first step? Go to your Vanguard account and check where your uninvested cash is held. Is it in VMFXX, VUSXX, or something else? Knowing this is the key to understanding your interest payments.
Step 2: Identify Your Vanguard Settlement Fund
For most new Vanguard brokerage accounts, the default settlement fund is the Vanguard Federal Money Market Fund (VMFXX). This is a money market fund that invests in high-quality, short-term debt securities issued by the U.S. government and its agencies. It's known for its stability and liquidity.
Another common option, especially for accounts that choose it, is the Vanguard Treasury Money Market Fund (VUSXX), which invests exclusively in U.S. Treasury bills and other Treasury securities.
You might also have a different fund, but VMFXX is the most common. Let's focus on that.
Step 3: Finding the Current Interest Rate (7-Day SEC Yield)
Vanguard and other money market funds don't pay a fixed interest rate like a savings account. Instead, they distribute dividends based on their earnings from the underlying securities. The standard measure for this is the 7-day SEC yield. This is a standardized, annualized yield that reflects the income earned by the fund over the most recent seven-day period, after deducting fund expenses.
How to find the 7-day SEC yield for your fund:
Log in to your Vanguard account.
Navigate to the fund's page. You can do this by searching for the ticker symbol (e.g., VMFXX) or by clicking on your settlement fund from your account summary.
Look for the "Performance" or "Yields" section. You'll see key figures like the 7-day SEC yield, the 30-day SEC yield, and historical returns.
As of late June 2025, the 7-day SEC yield for VMFXX is approximately 4.20%. This is a net yield, meaning the fund's expense ratio has already been deducted. For VUSXX, the 7-day SEC yield is around 4.21%.
It's important to note that these yields are not guaranteed and will fluctuate with changes in the Federal Funds Rate and other market conditions.
Step 4: Understanding the Payout Schedule
Vanguard's money market funds, including VMFXX, pay dividends on a monthly basis. However, the interest on your cash is accruing daily. This means that every day, your cash is earning a small amount of interest, and these earnings are totaled and paid out to your account at the end of each month.
Here's how it works in a simplified way:
You hold $10,000 in VMFXX.
The fund's daily dividend rate is a fraction of the 7-day SEC yield.
Every day, your account balance in VMFXX grows by a tiny amount.
At the end of the month, the total accrued amount is paid out as a dividend, which is then reinvested back into the fund (unless you have chosen otherwise). This is a form of compounding!
Step 5: The Vanguard Cash Plus Account
Beyond the brokerage settlement fund, Vanguard also offers the Vanguard Cash Plus Account. This is a separate cash management account that offers a competitive APY (Annual Percentage Yield) through a bank sweep program.
As of June 2025, the APY for the Vanguard Cash Plus Account is 3.65%. This is a great alternative if you want to keep your cash in a separate, FDIC-insured account that offers checking-like features.
Key differences between the settlement fund and the Cash Plus Account:
Step 6: Calculating Your Potential Earnings
Let's do a quick example to make this real. Let's say you have a $25,000 cash balance in your Vanguard brokerage account, held in the VMFXX settlement fund with a 7-day SEC yield of 4.20%.
To calculate your approximate annual interest, you can use this simple formula:
Principal x Annual Yield = Annual Interest
$25,000 x 0.0420 = $1,050
Your estimated annual earnings on that cash would be approximately $1,050. This amount would be paid out in monthly dividends.
Keep in mind that this is an estimate, and the actual rate will fluctuate. However, it's a much better return than what you'd get in a typical bank savings account!
10 Related FAQs
How to check my Vanguard settlement fund?
Simply log in to your Vanguard account. Your uninvested cash will be shown as a position in your portfolio, usually with the ticker symbol VMFXX or VUSXX.
How to change my Vanguard settlement fund?
You can change your settlement fund by navigating to your account settings or by contacting Vanguard customer service. Be sure to research other money market funds they offer to find the one that best suits your needs, such as VUSXX for a fund that invests exclusively in U.S. Treasuries.
How to get my interest from Vanguard's cash?
The interest is paid as a dividend and is automatically deposited into your settlement fund, where it is reinvested to buy more shares of the fund. This happens at the end of each month.
How to tell the difference between Vanguard's money market funds?
The main difference lies in their underlying investments. VMFXX (Federal Money Market Fund) invests in U.S. government securities and some bank repurchase agreements, while VUSXX (Treasury Money Market Fund) invests solely in U.S. Treasury securities. This can have implications for state and local taxes on your interest earnings.
How to benefit from the current high interest rates at Vanguard?
You can benefit by ensuring your uninvested cash is in the default settlement fund (VMFXX) or a similar high-yielding money market fund. Avoid keeping large cash balances in a regular bank account with a low APY.
How to understand the 7-day SEC yield?
The 7-day SEC yield is a standardized measure that shows the annualized income return of a money market fund over the past week, with expenses factored in. It's a snapshot of the fund's recent earning power.
How to get FDIC insurance on my cash with Vanguard?
The standard settlement funds are not FDIC insured. To get FDIC insurance on your cash, you would need to open a Vanguard Cash Plus Account, which uses a bank sweep program to provide coverage through partner banks.
How to reinvest my Vanguard cash interest?
By default, the dividends you earn from the settlement fund are automatically reinvested. You can check and change your dividend preferences in your account settings if you wish to receive the dividends as cash.
How to find historical interest rates for Vanguard funds?
You can find historical performance data, including yields and returns, on the individual fund pages on Vanguard's website. They provide charts and tables showing performance over different time periods (1-year, 5-year, 10-year, etc.).
How to decide between the settlement fund and the Cash Plus Account?
If your primary goal is to have a liquid holding for cash that you plan to invest in the short term, the settlement fund is the natural choice. If you want a more traditional banking experience with higher FDIC insurance limits and features like mobile check deposit, the Vanguard Cash Plus Account may be a better fit.
