Vanguard’s certificates of deposit (CDs) feature competitive rates on terms of one month to 10-plus years, and are available in the same Vanguard account you use for investing, making it convenient to maximize your earnings. But the simple interest these CDs pay could be slightly less than the compound interest bank CDs generally pay, and closing them early could pose a problem.
Account details and rates are accurate as of Feb. 21, 2024.
Overview of Vanguard CDs
As a broker, Vanguard doesn’t issue its own CDs. Rather, banks and credit unions sell CDs to Vanguard, which resells them to customers.
Because it works with many financial institutions, you can find a huge variety in one place — and you should carefully read each CD’s description. For example, different banks may pay interest on distinct schedules: monthly, quarterly, semiannually or only at maturity. Your financial plans might be thrown off if you expect a monthly payment, only to realize that you must wait a couple of years to get a lump sum.
You can use Vanguard’s filters to narrow down your search results, and if you end up needing to cash out your CD early, you can attempt to sell it on the secondary market.Unlike CDs you get directly from a bank or credit union, brokered CDs through Vanguard don’t impose a penalty when you redeem them early because you must resell the CD rather than simply taking the cash and closing the account. But a sale isn’t guaranteed — in the worst case, you might have to keep the CD or sell it for less than its principal amount.
How much can you earn with a Vanguard CD?
The yield you earn largely depends on the maturity you choose.
Remember that while many CDs pay compound interest, Vanguard brokered certificates of deposit pay simple interest. That means only the principal earns interest — your earnings aren’t added to the CD to gather interest themselves but are typically deposited in your brokerage cash account. As a result, your potential return may be slightly lower than it would be for another CD that has the same term and interest rate but a compounding interest schedule.
The table below shows how much you could earn with a CD based on its term and yield. You can use our CD calculator to run the numbers for a particular CD.
How Vanguard CDs compare
Other investment firms like also offer brokered CDs, like the Fidelity certificates of deposit and Charles Schwab certificates of deposit.
All three have new-issue CDs covered by the Federal Deposit Insurance Corp. (FDIC), which guarantees up to $250,000 of your deposits per insured institution in the case of a bank collapse. (There have been four bank failures in 2023.) All three also allow you to expand your deposit coverage by purchasing CDs from different issuing banks on their brokerage platforms.
How to open a Vanguard CD account
To purchase brokered CDs through Vanguard, you must first open an investment account. You can open an account and begin investing by following these steps:
- Choose an account type.
- Transfer money into the account.
- Select “My Accounts” and then “Buy & Sell” to search for and purchase CDs.
There are two ways to purchase Vangaurd’s brokered CDs: new issues and secondary trades.
Newly issued CDs are purchased directly from banks. There’s a $1,000 investment minimum, with additional purchases in increments of $1,000. There are no fees to purchase new issue CDs.
Secondary trades are transactions with another investor, not an issuing bank. Like new issues, secondary trades have a $1,000 investment minimum, with additional purchases in increments of $1,000. There’s a $1 transaction fee per $1,000 CD, and Vanguard charges $25 for broker-assisted secondary trades placed over the phone.
Documents you’ll need
If you already have a Vanguard account, you won’t need additional documentation to purchase CDs. But if you need to open a Vanguard brokerage account, you must first provide the following information:
- Your U.S. mailing address.
- Your bank account and routing numbers.
- Your Social Security number.
- Your employer’s name and address.
Other savings options at Vanguard
As a brokerage firm, Vanguard offers many ways to help you grow your wealth. But if you’re looking for low-risk cash options for storing your money safely, there are four primary accounts to choose from. Besides brokered CDs, Vanguard offers three other cash options:
- Vanguard Federal Money Market Fund: These funds invest in cash, cash equivalents and high-quality, short-term debt securities. They require a $3,000 minimum investment, and most funds allow you to access your money without penalty.
- Vanguard Cash Plus Account: This account resembles a traditional savings account. It comes with FDIC insurance in excess of the normal bank coverage, up to $1.25 million for individuals, and allows you to deposit and withdraw funds easily.
- Vanguard Cash Deposit: This account serves as a settlement fund, or a place to store the money you want to use for trading. It’s not meant to hold funds long term but comes with FDIC insurance of $1.25 million for individuals.
Frequently asked questions (FAQs)
Brokered CD rates are higher than the average bank CD yield, especially compared to the CDs big banks offer. They are comparable to the best rates on the market. But because brokered CDs pay simple interest rather than compound interest, your earnings may be slightly lower than they would be for another CD with the same term and interest rate but a compounding interest schedule.
Vanguard’s brokered CDs have a $1,000 investment minimum, with additional purchases in increments of $1,000.
Vanguard doesn’t charge an early withdrawal penalty for CDs because you can’t simply close them and take the cash. Instead, you must resell the CD on the secondary market. You may take a loss on the CD or may not be able to sell it at all, depending on the market.
Vanguard offers brokered CDs with terms ranging from one month to 10-plus years. CDs can be purchased as new issues or on the secondary market.
