Vanguard has 3 funds that can replace your savings account. 1....
The Money Cruncher, CPA@money_cruncher
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Feb 27, 2025
~2 min read
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Vanguard has 3 funds that can replace your savings account.
1. $VUSXX
2. $VBIL
3. $VMSXX
Here are all the details:
1. $VUSXX
2. $VBIL
3. $VMSXX
Here are all the details:
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1. $VUSXX - Vanguard Treasury Money Market Fund
This is a fund that invests in short-term U.S. government securities (like Treasury Bills)
It tries to maintain a stable $1.00 NAV and offers a competitive yield, making it a popular cash alternative.
This is a fund that invests in short-term U.S. government securities (like Treasury Bills)
It tries to maintain a stable $1.00 NAV and offers a competitive yield, making it a popular cash alternative.
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$VUSXX current yield is 4.27% after the 0.07% expense ratio.
Note: Other custodians, like Fidelity or Schwab, have their own versions of Treasury Money Market Funds that you can get.
Note: Other custodians, like Fidelity or Schwab, have their own versions of Treasury Money Market Funds that you can get.
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One key benefit of $VUSXX is its state tax exemption. Since it primarily holds U.S. Treasury securities, investors can avoid state income taxes on interest earned (a big advantage over savings accounts).
However, it's not FDIC-insured, but it is backed by the U.S. Treasury.
However, it's not FDIC-insured, but it is backed by the U.S. Treasury.
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One of the drawbacks of $VUSXX is that you can only buy in with a Vanguard account, and there’s a $3,000 minimum. This brings me to:
2. $VBIL
$VBIL is Vanguard's newly launched 0-3 Month Treasury Bill ETF. It invests exclusively in U.S. Treasury bills (0–3 months).
2. $VBIL
$VBIL is Vanguard's newly launched 0-3 Month Treasury Bill ETF. It invests exclusively in U.S. Treasury bills (0–3 months).
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You can buy $VBIL using almost any investing app.
The yield is not posted yet, as it's a new fund, but it's probably around the 4.3% range as well.
Since the fund holds T-bills, it will be state/local tax-exempt.
The yield is not posted yet, as it's a new fund, but it's probably around the 4.3% range as well.
Since the fund holds T-bills, it will be state/local tax-exempt.
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3. $VMSXX
If you are in the 37% tax bracket, it might actually make more sense to hold $VMSXX for your short-term savings.
It's Vanguard's Municipal Money Market Fund, a tax-exempt fund that invests in municipal securities
If you are in the 37% tax bracket, it might actually make more sense to hold $VMSXX for your short-term savings.
It's Vanguard's Municipal Money Market Fund, a tax-exempt fund that invests in municipal securities
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Similar to $VUSXX, it tries to maintain a $1.00 NAV with a minimum investment of $3,000.
The yield is 2.71%, but it is exempt on a federal level.
Here's how you can do the calculation:
The yield is 2.71%, but it is exempt on a federal level.
Here's how you can do the calculation:
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Say you are in the 37% federal tax bracket, with a 3.8% NIIT, and 5% state tax.
$VUSXX after-tax yield is 4.27% * (1 - 40.8%) = 2.53%.
$VMSXX after-tax yield is 2.71% * (1 - 5%) = 2.57%.
$VUSXX after-tax yield is 4.27% * (1 - 40.8%) = 2.53%.
$VMSXX after-tax yield is 2.71% * (1 - 5%) = 2.57%.
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Not a huge difference, but if you are also in a 5% state tax bracket, then it's 2.71% vs. 2.53%.
Tax-exempt interest could also make a difference on your other tax credits/deductions.
However, municipal funds are typically more risky than Treasury funds.
Tax-exempt interest could also make a difference on your other tax credits/deductions.
However, municipal funds are typically more risky than Treasury funds.
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Overall, the big benefits of these funds are:
1. Yields comparable to HYSAs without having to switch HYSAs every year.
2. Tax benefits (either state tax-exempt or federal).
But, they aren't FDIC insured like your bank.
1. Yields comparable to HYSAs without having to switch HYSAs every year.
2. Tax benefits (either state tax-exempt or federal).
But, they aren't FDIC insured like your bank.
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