Embarking on your investment journey with Certificates of Deposit (CDs) through the Vanguard app can be a smart move for diversifying your portfolio and securing a fixed return. If you're looking for a low-risk option to grow your savings, brokered CDs offered by Vanguard are an excellent choice. But how do you navigate the Vanguard app to make these purchases? Let's dive in!
Are you ready to unlock the potential of your savings with fixed-income investments? If so, you've come to the right place! This comprehensive guide will walk you through every step of buying CDs on the Vanguard app, making the process clear and straightforward.
Step 1: Get Ready - Your Vanguard Account & Funding
Before you can even think about buying CDs, you need to ensure you have the foundational elements in place. This is where many eager investors might overlook crucial prerequisites.
1.1 Do You Have a Vanguard Brokerage Account?
CDs on Vanguard are primarily offered as "brokered CDs". This means they are bought and sold through a brokerage account, not directly from a bank via Vanguard. If you don't already have a Vanguard Brokerage Account, this is your first and most important step.
- How to Open a Vanguard Account:
- Visit the Vanguard Website or Download the App: While we're focusing on the app for CD purchases, the initial account opening is often smoother on the desktop site.
- Choose Your Account Type: For CDs, you'll typically need a Vanguard Brokerage Account. You can open an Individual, Joint, or IRA (Traditional, Roth, SEP) brokerage account.
- Provide Personal Information: Be prepared to provide your Social Security number, date of birth, U.S. street address, and employer information.
- Link Your Bank Account: You'll need to link an external bank account (checking or savings) to fund your Vanguard account. This usually requires your bank account and routing numbers.
- Review and Submit: Carefully review all the information before submitting your application.
1.2 Fund Your Vanguard Brokerage Account
Once your Vanguard Brokerage Account is open, you need to ensure it's funded. Remember, Vanguard brokered CDs have a minimum investment requirement of $1,000, with additional purchases in increments of $1,000.
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Methods to Fund Your Account:
- Electronic Bank Transfer (ACH): This is the most common and convenient method. You can initiate a transfer directly from your linked bank account within the Vanguard app or website.
- Wire Transfer: For larger sums or faster availability, you can initiate a wire transfer from your bank to your Vanguard account.
- Check Deposit: You can deposit a check by mail or, for eligible accounts, use the mobile check deposit feature on the Vanguard app.
- Account Transfer: If you have an existing investment account elsewhere, you can transfer assets (including cash) to your Vanguard account.
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Pro Tip: Ensure your funds have fully settled in your Vanguard account before attempting to purchase CDs. Unsettled funds may prevent you from making a purchase immediately.
Step 2: Navigate the Vanguard App to Find CDs
Now that your account is ready and funded, it's time to open the Vanguard app and begin your search for the perfect CD.
2.1 Log In to the Vanguard App
- Open the Vanguard App: Locate and tap the Vanguard app icon on your smartphone or tablet.
- Enter Your Credentials: Log in using your Vanguard username and password. If you have two-factor authentication enabled (which you absolutely should!), you'll need to complete that step as well.
2.2 Access the Trading Section
The exact navigation might vary slightly with app updates, but generally, you'll look for a section related to "Trade," "Invest," or "Buy & Sell."
- Look for "Trade" or a Similar Option: On the main dashboard or navigation menu, find an option that allows you to make trades. This might be a prominent button or an item within a dropdown menu.
- Select "Bonds & CDs" or "Fixed Income": Once in the trading section, you'll typically see categories for different investment types. Look for "Bonds & CDs" or "Fixed Income."
Step 3: Search and Filter for Your Ideal CD
Vanguard offers a wide variety of brokered CDs from different issuing banks and with various maturity terms. This step is crucial for finding the CD that aligns with your financial goals.
3.1 Utilize the CD Screener/Search Tool
Vanguard's fixed-income screener is a powerful tool to narrow down your options.
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Access the CD Search/Screener: Within the "Bonds & CDs" section, you should find a "Search" or "Filter" option specifically for Certificates of Deposit.
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Apply Filters: This is where you can customize your search based on your preferences. Consider these important filters:
- Maturity Term: This is how long your money will be locked up. Vanguard offers terms from 1 month to 10+ years. Do you need your money back in 6 months for a down payment, or are you looking to lock in a rate for 5 years for a long-term goal?
- Yield: This is the interest rate the CD pays. Naturally, you'll want to find competitive yields.
- Callable vs. Non-Callable: This is an extremely important distinction.
- Non-Callable CDs: The issuing bank cannot redeem the CD before its maturity date. You're guaranteed to receive your principal and interest for the full term.
- Callable CDs: The issuing bank has the right to redeem the CD before its maturity date if interest rates fall significantly. If called, you'll receive your principal plus accrued interest, but you'll then need to reinvest at potentially lower rates. For most risk-averse investors, non-callable CDs are preferred for their predictability.
- Issuer: You can often filter by the issuing bank. All brokered CDs on Vanguard are FDIC-insured, but you might have a preference for certain banks.
- New Issues vs. Secondary Market:
- New Issues: These are purchased directly from the issuing bank. They typically have a $0 fee.
- Secondary Trades: These are purchased from another investor who is selling their CD before maturity. There might be a small transaction fee associated with secondary trades.
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Action Item: Spend time experimenting with these filters. Compare different maturity terms and their associated yields. Pay close attention to whether a CD is callable.
3.2 Review CD Details
Once you've identified a CD that looks promising, tap on it to view its detailed information.
- Key Information to Review:
- Maturity Date: The exact date your principal and final interest payment will be returned.
- Coupon Rate/Yield: The stated interest rate.
- FDIC Insurance: Confirm it's FDIC-insured (up to $250,000 per depositor, per bank).
- Call Provisions: Double-check if it's callable and understand the terms if it is.
- Interest Payment Frequency: When will you receive interest payments (e.g., at maturity, semi-annually, quarterly, monthly)?
- Minimum Investment: Reconfirm the minimum (usually $1,000).
Step 4: Place Your Order
Once you've found the CD you want to purchase, it's time to execute the trade.
4.1 Input Your Investment Amount
- Enter the Amount: You'll be prompted to enter the amount you wish to invest. Remember, brokered CDs on Vanguard are typically purchased in increments of $1,000. So, if you want to buy $5,000 worth of a CD, you'd enter "5,000."
- Important Note: Ensure you have sufficient settled funds in your Vanguard account to cover the purchase.
4.2 Review and Confirm Your Purchase
This is your final opportunity to verify all the details of your CD purchase.
- Order Summary: A summary screen will display all the critical information:
- CD Issuer
- Maturity Date
- Yield
- Purchase Amount
- Estimated Interest Earned (if applicable)
- Any Fees (for secondary market purchases)
- Acknowledge Disclosures: You'll likely need to acknowledge certain disclosures, such as the risks associated with brokered CDs and early withdrawal implications (though Vanguard brokered CDs don't have direct "penalties" like bank CDs, selling on the secondary market before maturity can result in a loss).
- Submit Order: If everything looks correct, confirm and submit your order. You'll usually receive a confirmation that your order has been placed.
Step 5: Monitor Your CD and What Happens at Maturity
Once purchased, your CD will appear in your Vanguard account holdings.
5.1 Monitor Your Holding
- View Account Holdings: You can check the status of your CD and track its value within your Vanguard account holdings on the app.
- No Active Trading: Unlike stocks or ETFs, CDs are generally held to maturity. You won't be actively trading them day-to-day.
5.2 What Happens at Maturity?
This is a key difference between Vanguard brokered CDs and direct bank CDs.
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Automatic Transfer to Money Market Fund: When your brokered CD matures, the principal amount plus any accrued interest will automatically be transferred to your linked Vanguard money market settlement fund. There is no grace period as with traditional bank CDs.
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Reinvest or Withdraw: Once the funds are in your money market fund, you have a few options:
- Reinvest: You can use these funds to purchase new CDs or other investments.
- Withdraw: You can transfer the funds back to your linked external bank account.
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Consider a CD Ladder: To maintain liquidity and take advantage of potentially rising interest rates, consider a "CD laddering" strategy. This involves staggering your CD maturities (e.g., buying 6-month, 1-year, and 2-year CDs simultaneously). As each CD matures, you can reinvest it into a longer-term CD, creating a continuous stream of maturing funds.
Frequently Asked Questions (FAQs)
Here are 10 common questions about buying CDs on Vanguard, answered quickly:
How to find the best CD rates on Vanguard?
You can find the best CD rates by using the CD screener in the "Bonds & CDs" section of the Vanguard app and sorting by "Yield" (highest to lowest) for your desired maturity term.
How to differentiate between callable and non-callable CDs on Vanguard?
When viewing CD details in the Vanguard app, look for a "call provision" or "callable" indicator. Non-callable CDs will explicitly state they are non-callable or have no call provisions.
How to ensure my CD purchase is FDIC-insured on Vanguard?
All brokered CDs offered through Vanguard are FDIC-insured up to $250,000 per depositor, per bank. This information is typically displayed on the CD's detail page.
How to sell a CD on Vanguard before maturity?
While Vanguard brokered CDs don't have early withdrawal penalties like traditional bank CDs, you can sell them on the secondary market. However, selling before maturity may result in a gain or loss depending on market conditions.
How to set up a CD ladder with Vanguard CDs?
To set up a CD ladder, purchase multiple CDs with staggered maturity dates (e.g., 6-month, 1-year, 18-month). As each short-term CD matures, you can reinvest the proceeds into a new longer-term CD.
How to transfer interest earned from Vanguard CDs?
Interest earned on Vanguard brokered CDs is typically deposited into your linked Vanguard money market settlement fund when it's paid (at maturity or periodically, depending on the CD terms). From there, you can transfer it to your bank account.
How to know the minimum investment for Vanguard CDs?
The minimum investment for Vanguard brokered CDs is generally $1,000, with subsequent purchases also in $1,000 increments.
How to check the maturity date of my Vanguard CD?
You can view the maturity date of your purchased CD by navigating to your account holdings within the Vanguard app.
How to contact Vanguard support for CD-related questions?
You can contact Vanguard client services through the app's "Support" or "Contact Us" section, which typically provides phone numbers, secure messaging options, or FAQs.
How to distinguish between new issue and secondary market CDs on Vanguard?
The CD search results or detailed view will typically indicate whether a CD is a "new issue" (purchased directly from the bank) or a "secondary market" offering (purchased from another investor). New issues usually have no fees, while secondary trades may have a small transaction fee.