Personal Finance 

Checkwriting with Vanguard Money Market Funds

Email  Print Print  

My fiancee and I have some money in a Vanguard mutual fund account that we’ve earmarked for future use (some of it is for a wedding, but mostly it’s for a rainy day) and one feature I like about the account is that it has free checkwriting. This isn’t anything special, many brokerages offer this feature, but it does require that you keep the some money in a bond or money market asset. You can’t write a check and have it auto-debited from a regular mutual fund account.

To set this up, you have to first select a money market account to give checkwriting privileges to. I took a quick look at the money market funds offered, there are four taxable money market funds and six tax-exempt money market funds (plus close to two dozen bond funds of both taxable and tax-exempt types), and at first couldn’t really see much of a discernible difference among them.

The only obvious difference is that the returns on the taxable money market funds are higher than the returns on the tax-exempt money market funds, which makes a little bit of sense because they’ll be much closer after taxes are concerned. The one year average of the four taxable funds ranged from 4.88% to 5.22% compared to 3.50% to 3.6% for the tax-exempt funds. When you consider the underlying construction of money market funds are that they invest in short term market instruments like CDs, commercial paper, bank notes, etc; the differences between one money market fund and another will just be in the level of risk it accepts.

Either way, I think I’m just going to pick Vanguard Prime Money Market Fund (VMMXX) because it has the highest return. All of the taxable fund expense ratios are 0.29% and the minimums are all $3k with the exception of the Admiral Treasury Money Market fund. It has an expense ratio of 0.13% but a minimum of $50k.

If they offered a Maryland Tax-Exempt money market fund, I probably would’ve chose that one but they don’t. They only offer California, New Jersey, New York, Ohio, and Pennsylvania. The beauty of those funds are that they are tax-exempt in those states plus federal income taxes. If you live outside of those states, you would only be shielded against federal income taxes.

After you pick a fund and add some money to it, setting up the checkwriting is a cinch. Simply go to your Account Profile and click on Checkwriting underneath Manage my accounts. They will ask to confirm that you want to establish Checkwriting. Click Yes and a separate PDF will open up containing a form you must fill out and mail in (because it contains signatures maybe? I don’t understand why it can’t be faxed).

Just some quick rules about the checkwriting, the check must be greater than $250 and Vanguard doesn’t withhold any taxes, even though it’s considered a distribution. It’ll be reported on a 1099-R. By setting up this checkwriting, we can avoid the need to transfer money from Vanguard to our Bank of America account before writing a check – thus saving ourselves a 3-4 day wait. Checkwriting is awesome!

{ 2 comments, please add your thoughts now! }

Related Posts

RSS Subscribe Like this article? Get all the latest articles sent to your email for free every day. Enter your email address and click "Subscribe." Your email will only be used for this daily subscription and you can unsubscribe anytime.

2 Responses to “Checkwriting with Vanguard Money Market Funds”

  1. Bill says:

    Good article about this nice option Vanguard offers. I’ve been using check writing with Vanguard Prime for about a year. I’m wondering if anyone can explain the differences between the three Vanguard money market funds: Prime, Federal & Treasury. I get that their investments differ a bit, but I haven’t quite been able to figure out if there are any state tax advantages of going with the Federal or Treasury. Does anyone know about this? Thanks.

  2. MossySF says:

    Vanguard Treasury is 100% state income tax free.

    Vanguard Federal is only ~30% state income tax free. Many states only allow claiming the deduction only if the percentage is 50% or higher. Hence this only would be a good solution if you lived in those states that allowed

Please Leave a Reply
Bargaineering Comment Policy

Previous Article: «
Next Article: »
Advertising Disclosure: Bargaineering may be compensated in exchange for featured placement of certain sponsored products and services, or your clicking on links posted on this website.
About | Contact Me | Privacy Policy/Your California Privacy Rights | Terms of Use | Press
Copyright © 2016 by All rights reserved.