how is cash held in mutual fund accounts?

Whenever you send money, you will need to tell them what to do with it. You can always open a money market account with them. At Vanguard, it's a simple matter of transferring money between accounts, especially online. As an alternative, you can hold the money in your own bank account and transfer the money from there, again, through online instructions. It's good to EFT your money as it takes only a day or two, rather than several days via mail.

Elizabeth Richardson

most brokerages have a "cash" account to hold funds not invested yet. But with Vanguard, you must designate a mutual fund to invest in whenever you transfer money in. If you want a place similar to a "cash" account, then you can put it in their Prime Money Market. But the problem is that you need $3000 minimum and $100 additional investment.

If you are using a money-market mutual fund as the sweep account for a Vanguard brokerage account, they waive the minimums. You still need $3,000 to open the account, but you can let it fall as low as you like. This policy doesn't seem to be written down anywhere, but it's what they told me when I asked them, and indeed I have a Vanguard brokerage account in which the sweep account has been below the normal account minimum for some time.

I've been a Vanguard customer for more than 10 years, so I can tell you about my experience. My remarks might even be accurate:-)

If you have a Vanguard mutual fund account, then there's not really any notion of depositing money. For example, you can't take a check that is made out to you, endorse it "for deposit only," and send it to Vanguard. They don't like to accept second- or third-party checks. Instead, you have to make out a check directly to Vanguard and send it to them with a deposit slip that has an account number on it.

That account number is tied to a specific mutual fund, so your check is used to purchase shares in that fund. As far as I know, there is no way to hold cash in a Vanguard mutual fund account -- it has to be in a fund. If you can't figure out what else to do with it, you can buy shares in one of their money-market funds -- but it's still a fund.

You can also do electronic transfers, but the rules are the same: Every transfer has to be associated with a specific fund or funds.

If you have a Vanguard *brokerage* account, then that account has a sweep account associated with it. The sweep account is linked to a Vanguard money-market mutual fund that you select. Whenever any cash shows up in your brokerage account, it is automatically deposted in the corresponding money-market fund. Whenever you buy something through the brokerage account, the money is automatically deducted from the corresponding money-market fund.

As of the last time I checked (about a month ago), Vanguard computes interest on money-market funds daily and credits it monthly. Current interest rates are in the vicinity of 5% for taxable funds and 3.4% for tax-exempt funds (available for CA, NJ, NY, OH, and PA).

do you qualify for the $50K rule? Because it seems pretty clear to me that you will be charged $10 annually if you drop below $2500.

"An annual $10 fee is generally deducted for each nonretirement fund account with a balance of less than $2,500. In addition, the fund account may be liquidated if the balance falls below $500. If your Vanguard account assets (including IRAs, employer-sponsored plans, brokerage accounts, annuities, as well as nonretirement fund accounts) total $50,000 or more, the low-balance fee may not apply."

Yes I do, so I don't know whether they waive the low balance fee the same way they do the minimum balance. If you're planning on opening a brokerage account with them, it would be a good idea to check.

On the high end, if you have $250,000 with them, they waive the $30/year fee for maintaining the brokerage account.

i do. so it looks to be pretty free except for the expense ratio.