Withdraw Funds From A Vanguard Money Market

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Vanguard money market funds don't get a lot of love from the investment community, nor do they receive much attention in financial media.

Money market funds aren't exactly a scintillating topic, nor a breathtaking investment. They're effectively an investment vault – a place for investors to safely stash their cash (and earn a minimal return) until they find somewhere to deploy it.

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But just about every Vanguard investor's assets are held in one of these cash accounts, even if only for a brief period. Thus, it's wise to know how Vanguard's money market funds work, and which one is best for your needs.

What Are Money Market Funds?

Not to be confused with a money market account, a money market fund is a type of mutual fund that holds cash and high-quality, ultra-short-term cash-equivalent securities.

The typical objective of money market funds is to provide current income, while maintaining liquidity and a stable price of $1 per share.

Investors typically don't use money market funds as long-term investment instruments, but rather as a temporary holding place for new money deposits or for settled funds resulting from a trade.

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For this reason, Vanguard and other mutual fund companies and brokerage firms sometimes refer to money market funds as "settlement funds."

Types of Money Market Funds

When boiled down to a simple shape and form, there are basically two types of money market funds – taxable and non-taxable.

Taxable money market funds typically invest in debt instruments, such as corporate commercial paper, U.S. Treasury securities or floating-rate bonds. Interest from this type of money market fund is taxable at the federal and state levels.
Non-taxable money market funds, also referred to as tax-exempt or tax-free money market funds, generally consist of state municipal securities that might be exempt from federal taxes. Under some circumstances, interest income can also be exempt from state taxes.

Given this backdrop, we'll break down what investors need to know about Vanguard's money market funds, both taxable and non-taxable, and which type might be best for your needs.

Vanguard Money Market Funds: Taxable

Vanguard's taxable money market funds are generally best for retirement accounts, such as IRAs or 401(k) plans. That's because their taxable status is not applicable to tax-deferred accounts. All Vanguard taxable money market funds have a minimum initial investment of $3,000.

There are three taxable Vanguard money market funds:

1. Vanguard Cash Reserves Federal Money Market Fund

With a history going back to 1975, Vanguard Cash Reserves Federal Money Market Fund (VMMXX) is Vanguard's oldest money market fund. Holdings are made up of cash, U.S. government securities and/or repurchase agreements collateralized by U.S. government securities.

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The expense ratio is 0.16% ($16 annually for every $10,000 invested) and the seven-day SEC yield, which reflects the interest earned after deducting fund expenses for the most recent seven-day period, is 0.01%. The one-year return as of March 31 was 0.14%.

VMMXX is closed to new investors but the Vanguard Cash Reserves Federal Money Market Fund Admiral Shares (VMRXX), which has a lower expense ratio of 0.10%, is open to new shareholders.

2. Vanguard Federal Money Market Fund

Vanguard Federal Money Market Fund (VMFXX) primarily holds cash, U.S. government securities and/or repurchase agreements collateralized by U.S. government securities.

Expenses for VMFXX are 0.11%. The seven-day SEC yield is 0.01%, and the one-year return as of March 31 was 0.11%.

3. Vanguard Treasury Money Market Fund

Vanguard Treasury Money Market Fund (VUSXX) sports the lowest expense ratio – 0.09% – of this money market fund lineup.

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VUSXX primarily holds U.S. Treasury bills but it may also invest in debt issued by federal agencies. The seven-day SEC yield is 0.01% and the one-year return at the end of the first quarter was 0.12%.

Vanguard Money Market Funds: Non-Taxable

Vanguard's non-taxable money market funds are generally best for non-retirement accounts, such as individual and joint brokerage accounts.

This is because the interest income from these funds is tax-exempt at the federal level. If the investor holds a money market fund with tax-exempt bonds issued in their state of residence, interest may also be tax-exempt at the state level. All Vanguard non-taxable money market funds have a minimum initial investment of $3,000.

There are three non-taxable Vanguard money market funds:

1. Vanguard California Municipal Money Market Fund

Interest earned from the Vanguard California Municipal Money Market Fund (VCTXX) is not taxable at the federal level. For California residents, it's also tax-exempt at the state level. This benefit is made possible because the fund holds short-term California municipal bonds.

The seven-day SEC yield for VCTXX is 0.01% and the one-year return as of March 31 was 0.11%. Expenses for the fund are 0.16%.

2. Vanguard New York Municipal Money Market Fund

Since the Vanguard New York Municipal Money Market Fund (VYFXX) invests in short-term municipal debt, interest earned is tax-exempt at the federal level, as well as at the state level for New York residents.

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Expenses for VYFXX are 0.16%, while the seven-day SEC yield is 0.01%. The one-year return at the end of the first quarter was 0.12%.

3. Vanguard Municipal Money Market Fund

For investors residing in states other than California or New York, the Vanguard Municipal Money Market Fund (VMSXX) is a good choice for a money market fund in a taxable brokerage account.

Tax-exempt at the federal level, VMSXX holds short-term, high-quality debt securities. The expense ratio for the fund is 0.15%, while the seven-day SEC yield is 0.01%. As of March 31, the one-year return for VMSXX was 0.15%.

To learn more about Vanguard money market funds, visit the provider's website.

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