Woman on her laptop looking at her short-term savings account.
Understanding investment types

Are you getting the best possible returns on your short-term savings?

Learn how Vanguard can help you take advantage of today's high interest rate environment.
7 minute read
February 16, 2023
Understanding investment types
Cash investments
Money markets

Investor, take note: Rising interest rates can bring opportunity. If you currently hold money in a traditional short-term savings account, you might want to consider other investment options that may bring better returns. Here's how Vanguard can help you take advantage of today's higher-rate environment.

Assess your short-term savings

In addition to your investments, you probably have a savings account for paying bills or stowing an emergency fund. Do you know if that savings option or investment fund is giving you the best possible returns? While cash may not represent the largest portion of your portfolio, it can come with higher yields when invested strategically.

It's worth comparing the current rate of return on your savings account to alternatives that may allow your cash to work harder for you. For example, money market funds may allow you to better take advantage of rising rates.

Higher rates can help your money grow

The Federal Reserve raised interest rates by a total of 4.25% in 2022 to combat historically high inflation. While a rising interest rate environment like this can make borrowing more expensive, it can also help your money grow. One way to potentially earn more is investing in Vanguard's low-cost money market funds. These funds invest in low-risk, short-term government and municipal debt with yields that vary depending on prevailing rates.

According to the FDIC, a traditional savings account in the U.S. has an interest yield of 0.48%.* Compare this with the average 7-day SEC yield of 4.53% for Vanguard Cash Reserves Federal Money Market Fund.** Our money market funds have a history of strong performance—100% outperformed their peer-group averages over the last 10 years.***

When investing in a money market fund, you should always weigh the value of certain features against the potential risk and reward. For example, bank savings accounts come with FDIC protection, so bank deposits are guaranteed (within limits) by the federal government. Money market funds have strict controls and regulations in place to protect investor capital. Additionally, Vanguard money market funds invest largely in U.S. government securities and Treasury securities backed by the full faith and credit of the U.S. government. Choose the option that's best for you based on your goals and risk tolerance.

The benefit of investing with Vanguard

Not only can the higher-rate environment work to your advantage—investing with Vanguard can too. Vanguard is owned by the people who invest in our funds. As an investor-owner, you can trust that we are your partner.† Helping you reach your goals is a mark of our success.

Another benefit of investing with Vanguard is our lower expense ratios. Since steep fees can diminish your returns, it’s a good idea to take expense ratios into consideration when choosing a place for your short-term savings. Vanguard's lower money market fund expense ratios allow you to keep more of your money. In fact, the average expense ratio of Vanguard's money market funds is 54% less than the industry average.††

While rates are rising, take a look at your savings account to see what you're paying and earning. If you think there's room for improvement, consider exploring Vanguard money market funds.

Make your cash work harder for you with Vanguard money market funds.

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*Source: FDIC, National Rates and Rate Caps. February 21, 2023.

**Source: Vanguard, as of February 28, 2023.

***For the 10-year period ended December 31, 2023, 6 of 6 Vanguard money market funds outperformed their Lipper peer-group average. Results will vary for other time periods. Only mutual funds with a minimum 10-year history were included in the comparison. Source: Lipper, a Thomson Reuters Company. The competitive performance data shown represent past performance, which is not a guarantee of future results. View fund performance..

†Vanguard is investor-owned, meaning the fund shareholders own the funds, which in turn own Vanguard. 

††Vanguard average expense ratio for money market funds: 0.11%. Industry average money market fund expense ratio: 0.24%. All averages are asset-weighted. Industry averages exclude Vanguard. Sources: Vanguard and Morningstar, Inc., as of December 31, 2023.

All investing is subject to risk, including the possible loss of the money you invest.

For more information about Vanguard funds, obtain a mutual fund prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.

You could lose money by investing in Vanguard Cash Reserves Federal Money Market Fund. Although the fund seeks to preserve the value of your investment at $1 per share, it cannot guarantee it will do so. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The fund’s sponsor has no legal obligation to provide financial support to the fund, and you should not expect that the sponsor will provide financial support to the fund at any time.

Savings accounts may have characteristics that differentiate them from Vanguard's money market funds. For example, they may offer overdraft protection, ATM access (immediate access to your money), and other convenience features. Each company’s products differ, so it’s important to ask questions to understand account features. There may be other material differences between products that must be considered prior to investing.