A Vanguard Cash Plus account is a money market fund that holds your cash and pays interest while you wait to invest it elsewhere
Vanguard Cash Plus is not a bank account or a savings account. It is a money market mutual fund — a pool of short-term, low-risk debt instruments like Treasury bills and commercial paper. When you deposit money into it, you own shares of that fund, and the fund pays you interest based on what it earns. The interest rate moves with the broader money market, so it changes regularly.
The main reason people use it is as a holding place for cash within a Vanguard brokerage account. If you have money sitting in your account waiting to buy stocks or bonds, or if you have just sold an investment and do not know what to do with the proceeds yet, Cash Plus keeps that money working instead of sitting idle at zero interest. It is also used as a conservative core holding for people who want most of their portfolio in stocks but want some portion in something safer.
Cash Plus is not the same as a money market account at a bank. It does not have FDIC insurance, and the share price can fluctuate slightly, though in practice the fluctuation is tiny. It also is not a savings account — you cannot set it up to receive direct deposits from your employer, and there are no withdrawal limits or monthly statement cycles the way a bank account has.
Key Takeaways
- Cash Plus is a money market fund that pays interest on your cash, not a bank deposit account, so it has no FDIC insurance.
- The interest rate changes regularly based on what the fund earns from short-term Treasury bills and commercial paper it holds.
- It works best as a temporary holding place for money within a Vanguard brokerage account while you decide where to invest it.
- You can move money in and out without penalty, but it is not designed for frequent deposits like a paycheck or regular savings.
How the interest rate works and what you actually earn
Cash Plus pays a distribution yield that changes based on what the fund earns. The fund buys Treasury bills, commercial paper, and other very short-term debt that matures in days or weeks. When those investments pay interest, the fund passes that income to shareholders as distributions — usually monthly. The yield you see quoted is an annual rate, but the actual monthly payout is one-twelfth of that.
The rate is not fixed. When the Federal Reserve raises interest rates, money market funds earn more, and Cash Plus distributions go up. When rates fall, distributions fall. This means the rate you see today will not be the rate you earn next month. You can check the current yield on Vanguard's website, but plan for it to change.
The distributions are reinvested automatically — the interest gets added to your account balance and buys more shares of the fund. You do not have to do anything. If you want to withdraw the interest instead of reinvesting it, you can change that setting, but most people leave it on automatic reinvestment.
When Cash Plus makes sense and when it does not
Cash Plus works well if you have a Vanguard brokerage account and you are holding cash temporarily. You might be saving up to buy a stock or bond fund, or you just sold an investment and are deciding what to do next. Instead of letting that money earn nothing, it earns whatever the current money market rate is — which in recent years has been competitive with high-yield savings accounts at banks.
It also works for people who want a small conservative portion of their portfolio — say 5 to 10 percent — in something very safe. Because the share price is stable and the fund holds only short-term debt, the risk of loss is extremely low. If you are near retirement and want some money that will not drop in value during a market downturn, Cash Plus can fill that role.
Cash Plus does not work well if you need to park money for a very long time and want may provide interest. A bank savings account or a certificate of deposit (CD) locks in a rate for a set period, so you know exactly what you will earn. Cash Plus rates move with the market, so if rates fall, your earnings fall with them. It also does not work if you need FDIC insurance — if the fund itself failed (extremely unlikely), your money would not be protected the way a bank deposit is.
How to open and use a Cash Plus account
You cannot open a Cash Plus account on its own. You must have a Vanguard brokerage account first — either a regular taxable account, an IRA, a 401(k) rollover account, or another type Vanguard offers. Once you have the brokerage account, Cash Plus is available as one of the fund options you can hold.
To move money into Cash Plus, you deposit funds into your brokerage account through a bank transfer or check deposit. Then, within the account, you direct that cash to buy shares of the Cash Plus fund. You can do this through Vanguard's website or by calling them. The transaction settles when ready — you own the shares right away and start earning distributions.
Moving money out is just as straightforward. You sell your Cash Plus shares (which takes one business day to settle) and then transfer the cash back to your bank account, or use it to buy another investment within the brokerage account. There are no fees or penalties for moving money in or out, and no minimum holding period.
Cash Plus compared to other places to hold cash
| Option | Interest Rate | FDIC Insured | Best For |
|---|---|---|---|
| Vanguard Cash Plus | Moves with money market rates; currently competitive | No | Temporary cash within a brokerage account |
| Bank savings account | Varies by bank; often lower than money market | Yes, up to $250,000 | Emergency funds and short-term savings |
| High-yield savings account | Moves with rates; often matches or beats money market | Yes, up to $250,000 | Cash you want to keep at a bank |
| Certificate of deposit (CD) | Fixed for the term; higher than savings accounts | Yes, up to $250,000 | Money you will not need for 3 months to 5 years |
| Money market account at a bank | Varies; often lower than high-yield savings | Yes, up to $250,000 | Hybrid of checking and savings |
The main trade-off is insurance versus convenience. A high-yield savings account at a bank will often pay a similar or slightly higher rate than Cash Plus and has FDIC insurance. But it requires a separate account at a different institution. If you already have money in a Vanguard brokerage account, Cash Plus keeps everything in one place and avoids the friction of moving money between banks.
Fees and tax treatment
Vanguard charges no fee to hold Cash Plus. There is no annual expense ratio, no transaction fee, and no minimum balance. The only cost is the tiny difference between what the fund earns and what it pays out — this is called the expense ratio and is built into the yield you see quoted.
The interest you earn on Cash Plus is taxable as ordinary income in the year you receive it. If you hold the fund in a regular taxable brokerage account, you will owe federal income tax on the distributions. If you hold it in an IRA or 401(k), the distributions are tax-deferred or tax-free depending on the account type. This is the same tax treatment as any other interest income.
Frequently Asked Questions
Is my money safe in Cash Plus if Vanguard has problems?
Cash Plus is not FDIC insured, so if Vanguard itself failed, your money would not be protected the way a bank deposit is. However, Vanguard is one of the largest investment firms in the world and is extremely unlikely to fail. The fund itself holds Treasury bills and other very safe short-term debt, so the investments inside it are find even if the fund manager had trouble.
Can I use Cash Plus as my main savings account?
You can, but it is not designed for it. Cash Plus does not accept direct deposits, does not have a debit card, and does not provide monthly statements like a bank. It works best as a holding place for money within an investment account, not as a replacement for a checking or savings account.
What happens to my Cash Plus money if I do not touch it for years?
It stays invested in the fund and keeps earning distributions. The distributions are reinvested automatically, so your balance grows. There is no time limit or penalty for holding it long-term, though if rates fall significantly, your earnings will fall with them.
How does Cash Plus compare to just leaving cash in my brokerage account?
If you leave cash sitting in your brokerage account without investing it in anything, it typically earns zero interest. Cash Plus puts that money to work earning the current money market rate. The difference is small in any single month, but it adds up over time.
Can I lose money in Cash Plus?
The share price is extremely stable — it is designed to stay at $1 per share. In theory, if interest rates fell sharply or if the fund held a security that defaulted, the price could drop slightly below $1. In practice, this almost never happens. The real risk is that your earnings will be lower if rates fall, not that you will lose your principal.