[Update April 2022: Vaguard’s CDs rates are on the rise again this month. All of their new issue CDs with terms greater than 7 months have seen an increase in yield since the start of April through the date of this post. 10 year CDs had the most notable jump – up 0.35% from 3.0% to the current 3.35% APY. See all rates below.]
Vanguard is an investment management company that has been around since 1975. They are the largest provider of mutual funds and the second largest provider of exchange-traded funds (ETFs). They service customers worldwide and have over $7 trillion in assets under management.
They also currently offer some competitive APYs on their brokered certificates of deposit.
You can purchase both new issue CDs and secondary market CDs through Vanguard.
To see if these products are right for you, continue reading our review below.
Vanguard CD Rates and account details
First, Vanguard is not a bank themselves but a brokerage and thus brokers these deposit accounts from various banks and/or credit unions.
The brokered CDs available through Vanguard can change at any time as Vanguard may choose to purchase accounts from different banks. To find out which ones are available, you can run a quick search yourself on the Vanguard site in their fixed income section or call an agent.
You can search for brokered CDs by the issuer, term length, yield, or quantity. A Vanguard broker can help you choose a CD that will help you achieve your investment goals by your target date, or you can select one yourself.
Here is a sample of the current terms and rates available for new-issue CDs through Vanguard (surveyed April 4, 2022):
|1 – 3 months||0.40%|
|4 – 6 months||0.85%|
|7 – 9 months||1.05%|
|10 – 12 months||1.45%|
|13 – 18 months||1.90%|
To put these in perspective, the national average rate for a 6-month certificate of deposit sits at 0.09%, a 12-month certificate sits at 0.15%, and a 60-month certificate sits at 0.29% according to recent FDIC data.
What Is a Brokered CD?
If you’re not familiar with brokered certificates, they differ from traditional certificates in a few key ways.
One of the biggest is that traditional certificates of deposit you’d find at a bank or credit union are issued by the bank or credit union themselves and sold directly to their customers and members.
The primary benefits of a brokered CD are:
- They can offer higher yields than traditional CDs, because they broker accounts form a number of institutions and aren’t fixed to any one institution’s rates.
- It expands your FDIC coverage. Because you can open multiple CDs from multiple banks through your brokerage, you will receive your full $250,000 in FDIC coverage for each deposit you open. This way you can invest more money in CDs without sacrificing FDIC coverage and with the convenience of managing all your CD accounts with one broker.
- Flexibility. Because these are brokered securities, you may choose to sell your CD before it matures on the secondary market.
Both standard certificates of deposit and brokered certificates are considered to be low-risk investments because they earn a fixed interest rate until maturity and guarantee full principal and interest. If you sell a brokered CD, there is an inherent risk that you will lose some of your interest, but it is not possible to lose the principal you have invested whether you sell or not.
Vanguard brokered CDs may be callable or noncallable. Callable means that the issuing bank has the option to call or terminate your certificate before it matures and return the principal and interest to you. Issuers often choose to do this when interest rates drop as they can save money when paying you your interest. Some callable CDs can only be called for a certain period of time and others are eligible to be called at any time before maturity. If you choose a callable brokered CD, note the callable date and understand that your account may be closed.
When your certificate reaches maturity, the principal and interest is transferred into your settlement fund and you may withdraw the funds as cash. Brokered CDs do not automatically renew at maturity as traditional CDs do.
Primary and Secondary Market
Vanguard allows you to purchase both primary market and secondary market CDs.
- Buying CDs in the primary market means your broker (Vanguard) is transacting with the issuer of the security directly (i.e. the bank or credit union).
- Buying (or selling) CDs in the secondary market means you’re transacting with other market participants.
Are Bonds and Brokered CDs the Same?
Vanguard places brokered CDs and bonds in the same category and offers a variety of government-issued securities, but bonds and brokered CDs are not the same product. Both are fixed-income securities, but brokered CDs are issued by banks and credit unions while bonds are often issued (and insured) by the government.
Still, if you’re interested in both, you can choose from U.S. government agency securities and corporate bonds, U.S. Treasury securities, municipal bonds, mortgage-backed securities, and unit investment trusts.
How to Open
There are two different ways you can purchase a CD through Vanguard.
The first is to buy a new issue CD.
You must invest at least $1,000 to get started and can increase your investment in increments of $1,000. New certificates are issued directly from banks through Vanguard, so you earn the interest rate set by the bank.
The second is to purchase a secondary issue CD.
This is where you buy an existing CD from someone looking to sell theirs that has not yet matured. This is done on a secondary market through Vanguard brokerage. Vanguard charges a commission for these trades equal to $1 for every $1,000 you invest and will help you choose from available CDs and initiate the trade.
You pay commission fees when your certificate matures, not when you make your investment. If you choose to purchase various secondary market CDs with Vanguard at a time, you will pay commission for each.
You are not permitted to invest more money into your account after you have made an initial deposit. CDs can be opened online or over the phone (additional fees may apply for phone trading).
How to Earn Interest
Vanguard CDs pay simple interest at maturity into your linked Vanguard money market fund. This is another key difference between brokered and non-brokered CDs, as non-brokered CDs compound interest and credit it monthly or quarterly back into the certificate, onto the principal, until it reaches maturity (at which point you can withdraw the funds).
Remember, for Vanguard’s brokered CDs, yields are calculated as simple interest, not compounded.
Terms and Fees
Purchasing new issue CDs are completely free of charge.
As mentioned, when purchasing CDs on the secondary market, Vanguard charges a $1 transaction fee for every $1,000 you invest but no more than $250 in total.
If you place a secondary trade over the phone, you will pay a $25 fee for a broker to help you complete the trade.
The fees are waived for secondary trades if you hold more than $1 million across all of your Vanguard assets including fixed income investment products, mutual funds and index funds, and ETFs.
Vanguard CDs are federally insured up to $250,000 per depositor. All banks issuing new brokered CDs are also FDIC insured so that you are fully covered with each bank you have purchased a CD from.
If you decide to sell your brokered CD before it matures, you can do so through your Vanguard brokerage account.
Each bank imposes its own minimums and maximums. Some, for example, may require you to invest at least $10,000, not $1,000. Vanguard will help show you your options, but it is your responsibility to make sure you understand the terms for each of your CDs. Vanguard plays no role in deciding whether you qualify for an account.
Note that these brokered CDs do not automatically renew at maturity. Instead, the principal and interest you’ve earned is transferred to your linked Vanguard money market account.