Vanguard offers certificates of deposit (CDs) that are quite different from the standard CDs you find at banks. The firm offers brokered CDs, which are CDs banks issue that brokerage firms buy in bulk and then resell to their brokerage customers at competing rates.
However, Vanguard Brokerage requires a minimum of $10,000 to open a CD followed by $1,000 increments. Still, its 10-Year CD carries a 3.40% interest rate that greatly exceeds CD rates you’d get through banks directly. However, interest is not compounded within the CD, but rather paid to your linked Vanguard money market account (MMA) where it will compound. In other words, your return would be the same each year—still a potentially high amount based on the given interest rates.
Vanguard Brokerage CDs
Vanguard offers its customers brokered CDs with highly competitive rates. You can open one for terms stretching from one month to 10 years. And the longer you invest, the higher your interest rate will be. The table below provides more details.
|Vanguard Brokered CD||Minimum Deposit||APY|
|1 Month||$10,000||1.75%||Compare CD Rates|
|3 Month||$10,000||1.90%||Compare CD Rates|
|6 Month||$10,000||2.00%||Compare CD Rates|
|9 Month||$10,000||2.10%||Compare CD Rates|
|1 Year||$10,000||2.35%||Compare CD Rates|
|18 Month||$10,000||2.55%||Compare CD Rates|
|2 Year||$10,000||2.80%||Compare CD Rates|
|3 Year||$10,000||3.00%||Compare CD Rates|
|5 Year||$10,000||3.35%||Compare CD Rates|
|7 Year||$10,000||3.40%||Compare CD Rates|
|10 Year||$10,000||3.45%||Compare CD Rates|
Overview of Vanguard CDs
Vanguard offers several brokered CD options because the firm sells CDs through a national network of more than 100 dealers.
This means you can buy CDs issued by multiple banks. Why does that matter? The hidden gem here is additional FDIC protection. Say you want to park $1 million in a growth vehicle. If you put it all in a CD with one bank, the FDIC can only legally insure up to $250,000 per account owner per insured institution. But you can stretch that protection if you open up multiple CDs with different banks. And if you open CDs with different term lengths, you’d be ensured access to principal and earnings at different time intervals. This is a strategy known as CD laddering.
However, Vanguard doesn’t offer tiered CDs. So you’d earn the same interest rate for a 10-Year CD whether you deposit $10,000 or $100,000.
Interest will be paid to your linked Vanguard money market account at the end of the year. The interest will then compound within the money market vehicle.
In addition, you can sell your CD on the secondary market—what is commonly referred to as the stock market—and keep all accrued interest. Vanguard won’t charge a commission if you sell a CD on the secondary market. However, commissions will be charged for transactions on the secondary market. CDs sold before maturity on the stock market could also be subject to interest rate volatility which could lead to major gain or loss.
Vanguard Brokerage doesn't charge commission fees on CDs purchased on the primary market However, the bank may receive a concession from the issuer. The firm doesn’t charge commissions when you sell a CD on the secondary market.
In addition, brokered CDs don’t renew at maturity or when the term is over as standard CDs do. Instead, the principal on your matured CD will transfer to your Vanguard MMA. You can open a new CD online or through the phone.
How Much You Earn With Vanguard CDs
If you invest a sizable amount into a Vanguard CD and keep it invested until the term ends without selling it on the secondary market, you could end up with a sizable return at maturity.
Keep in mind, however, that your interest won’t compound at Vanguard. This means that every year, you’d get the interest rate on your CD multiplied by the principal you put in. For example, let’s say you invest $150,000 in a 10-Year CD with a 3.40% interest rate. Your interest will equal $5,100 each year.
Your interest is then transferred to your linked Vanguard money market account where it will compound on that account’s rate.
How Vanguard Compares to Other Banks
Vanguard CD rates can rise high above those offered by its competitors including other institutions that offer brokered CDs.
As you can see in the table below, the rates tied to Vanguard CDs are a few steps ahead of similar offerings by Fidelity. Vanguard CD rates are also moderately higher than standard CDs found at online banks like Ally Bank and Marcus by Goldman Sachs, which are known for their high-yield savings accounts.
|CD Account||Vanguard||Fidelity||Ally Bank||Marcus by Goldman Sachs|
Should You Get a Vanguard CD Account?
You should open a Vanguard brokered CD if you can comfortably meet the minimum $10,000 deposit and are willing to invest for the mid- to long-term, which is where Vanguard's rates really stand out.
However, keep in mind that brokered CDs operate differently than standard CDs that you can open with banks directly. Also, interest doesn’t compound within the Vanguard CD. Instead, it will compound based on the rates affiliated with your linked Vanguard MMA. Depending on your savings goals, this could have a significantly negative impact.
You should seek a financial advisor to discuss how best to go about investing in brokered CDs based on your individual savings goals.