I’ve been looking for the “checking account killer”; the recently launched Vanguard Cash Plus account isn’t it, but it’s close. The Vanguard Cash Plus account provides a high-yield savings account that, unlike others, can be used to pay most electronic bills. While it doesn’t fully replace a checking account (yet), it can allow you to save much more of your monthly liquidity in a high-paying account. Here’s how I’ve reconfigured my own personal cash management to take advantage of this account’s special features to get even more of money working for me. Perhaps you’ll see something interesting you want to adopt. (To be clear, I have no affiliation or pecuniary connection with Vanguard or any other financial institution for that matter.)
Incorporating the Vanguard Cash Plus Account Into a Cash Management Strategy
Checking accounts still pay next to nothing. So any cash we hold in them loses purchasing power day after day. Banks are currently taking all the interest they earn on our money. You can try to move as much money as you can into a high-yield savings account, but those accounts typically do not offer bill-pay functionality. So I’ve had to keep significant cash in a checking account to pay bills—until now.
In the graphic to the right, I modify the cash management framework I discussed in another article to incorporate the Vanguard Cash Plus account. This is how I manage my own family’s finances:
- I still maintain a checking account. But I only keep the bare minimum cash in it to avoid the service fee. If I ever need to pay by check (which comes up occasionally) or pull cash from an ATM, I plan to move some cash back into checking to fund the transaction.
- Paychecks and income go instead into the Vanguard Cash Plus account. Virtually all automatic bill pays come out of this account now.
- Same as before, excess cash reserves are invested in a segregated Cash Alternatives brokerage account, managed to the same strategy I employ for clients. The big advantage over a high-yield savings account is that I can generally build a portfolio with higher expected after-tax total return for me and my clients.
The end result of this slight change is that many more months of expenses are earning almost 5% risk-free interest than when I had to keep more cash in the checking account.
More About the Vanguard Cash Plus Account
- The Cash Plus account is actually a brokerage account with restrictions and special features. Vanguard partners with a group of program banks to provide a savings account product and a routing number that will be compatible with most of your electronic bills.
- The current yield on cash is 4.7%, which is pretty good and near the top of the range for high-yield savings options.
- If you have more cash than your monthly liquidity needs, you can use excess funds in your account to purchase Vanguard money market funds as an alternative to a high-yield savings account (they have investment minimums of $3,000).
- If your savings ever exceed FDIC limits, Vanguard will sweep your funds across multiple program banks increasing your insured limits to $1.25 million (for individuals) or $2.5 million (for couples).
- While a behemoth, Vanguard is shareholder-owned and a trusted name in investing. Personally, I’ve had an irritating experience transferring an old retirement plan held by them in the past. But that’s a common experience no matter the institution and a completely different branch of the firm. So far, it’s been smooth sailing with this Cash Plus offering.
You can learn more on Vanguard’s website »
The Cons So Far
- You can’t write checks or use a debit card or ATM with the account. If Vanguard ever adds these features, though, I might be able to say good-bye to traditional checking accounts for good.
- Vanguard does not permit contingent beneficiaries on joint accounts (annoying). So if you’re married and you’ve already drawn up your family trust, open a trust account instead. If not, you’ll want to retitle the account once your estate documents are completed.
- In my testing, the account did not work with Venmo. So if you use similar peer-to-peer payment systems, that’s another reason to keep a small checking account balance.
- Incoming cash is subject to a 7-day hold, so don’t schedule any bill pay transactions until after it clears. Test things before you move everything over. Then make sure you always have sufficient funds in the account to meet automatic payments (if you’re using this as your primary liquidity account, this shouldn’t be a problem).
What Smart Cash Management Looks Like
If you already have a good system in place, it’s probably not worth disrupting as long as you have most of your cash reserves earning 4%-5% for you. But if you have a lot of cash in checking accounts or are dissatisfied with your current high-yield savings account, there’s an opportunity get more of your money working for you. The ability to pay electronic bills from the Vanguard Cash Plus account is a powerful innovation you can exploit.
Ultimately, smart cash management involves
- minimizing checking account balances earning next to nothing;
- maximizing risk-free or low-risk interest income on cash reserves; and
- focusing on after-tax returns, not just the highest yield.
Ideally, you accomplish all this across the fewest number of accounts possible while employing a process that requires the least amount of attention.
Cash earning below the inflation rate is actually a risk, it’s just a risk you can’t see. Inflation silently drains your purchasing power. Today we have a plethora of options at our disposal to combat this silent capital loss. But you have to act. As my planning client, you have me on call. I encourage you to reach out to schedule a strategy session about cash management or any other investment or planning topic.
All content presented in this article is for informational purposes only. Materials presented should not be interpreted as a solicitation or offer to buy or sell a security or the rendering of personalized investment advice, which can only be provided through one-on-one communication with a financial advisor. The content reflects the opinions of Hesperian Wealth LLC (HW), except where cited, which are subject to change at any time without notice. The information contained herein has been obtained from sources believed to be reliable, but the accuracy of the information cannot be guaranteed. All information or ideas provided should be discussed in detail with a financial, tax, or legal advisor prior to implementation.
Investing involves substantial risk, including the potential loss of principal. HW makes no guarantee of financial performance nor any promise of any results that may be obtained from relying on the information presented. HW may analyze past performance, but past performance may not be indicative of future performance.