Do you still pay taxes & is Vanguard safe?

Question

Does anyone know if the tax rate for your earnings in a Vanguard CD or money market account is the same (about half) every year after taxes?

Also, b/c it's not FDIC insured why should people trust investing their money in a Vanguard account?

Are there any hidden fees?

Is there a phone number I can call to speak to someone (I couldn't find it on their website) about terms and conditions?

I'll give 10 points to anyone who can answer all the questions above and if possible lay out the basic limitations on withdrawing money etc... for a Vanguard account.

Thanks everyone!

Answer 1

In the United States, all income is subject to income tax, unless it is from a tax free vehicle.  CD's and most money markets would be included in your taxable calculation.

The tax rate would be dependent on your personal tax bracket.

The balances and positions are insured like all other fund companies.  The FDIC only insures banks, not fund companies.   If you don't have trust in a company like Vanguard, you should even bother opening an account.

Their fee schedules are among the lowest in the industry.  All fees are up front and explained in both the new account application, and in the prospectus of the fund product you select.  All of this can be found on their website

To withdraw money, you just notify the company, and monies will be sent the next day.  These instructions can be given on-line, and the process will start that day.

Vanguard is considered one of the better fund companies, and enjoys a very well earned excellent reputation.  I understand your concerns since it;'s your money your investing, but I have never heard anyone complian about or even question Vanguard reputation, and I;ve been in this business for over 45 years.

Answer 2

Capital gains are viewed as an addition to income which may put you the next higher tax bracket, I believe.

Answer 3

Indeed you do have a lot of questions.

1st off the phone number: 877-662-7447

buying CDs through Vanguard.  What they sell are CDs issued by FDIC insured banks, so yes they are insured provided you do not buy more than $100,000 worth.  Many times the government will even go over the limit on the insurance.  At least they did during the S&L fiasco.

CD interest is taxed at the full tax rate.  You can defer these taxes sometimes by purchasing CDs that pay interest upon maturity if the maturity date falls in a following year.  The only types of accounts that qualify for the preferential tax rates are equity investment accounts.  These would be mutual funds that invest in stocks not bonds or other interest paying accounts such as money market accounts.  There are however tax free money market accounts available that are free from federal taxes and perhaps even certain state taxes.

I believe the Vanguard does have a few hidden fees.   There is no hidden fee for purchasing a CD.  In fact there is no fee at all, but they do charge account maintenance fees on smaller accounts. $30 annually.  No fees if your account balances are over $100,000

Answer 4

I think you need to do a little more research on investing (in general) and at Vanguard.com.

I have used Vanguard personally and professionally for years without a single hang up.  They are who they say they are and it is not difficult to get the truth out of them if you simply ask.

They do not want frequent traders, timers, or other high cost clients.  If they have anything that might surprise you "after the fact" it would be that:  many of their pricing structures (which are upfront and easy to find on their website) are explicitly designed to stop excessive trading of all kinds.

They do have sales people and products (like actively managed mutual funds) that make them hypocrites to their own stated goals and priorities.  But, again, if you ask them directly, they are much more likely to tell you the black and white facts than 80% of the rest of the industry.

All cash investments:  money market funds, CD's, savings account, etc. will be destroyed by taxes and inflation over time.  Vanguard tends to offer slightly better options at siginficantly lower prices, that's it.

All FDIC insured products will say so, but with Vanguard products generally (mutual funds/brokerage accounts) you have protection from fraud and an extremely low probablity of default, given how conservatively most of them are run.

Let say, you open an IRA at Vanguard and go super conservative:  50% in Vanguard Prime Money market fund, 25% in Vanguard Total US Index Stock Market Fund and 25% in Vanguard Total International Index Stock Market Fund.  

Of course, if the markets go up and down the stock funds will go up and down...but on a scale of 1 to 10 for financial strength, this IRA would likely get a 9 for the next 25 years while your local bank might get a 7 (maybe a 5 this week!).  If you have more than $100k in the account, the difference matters -- FDIC ain't going to protect you in the long run.

Answer 5

First of all, are you talking about a taxable investment or something within an IRA?  

Vanguard is a mutual fund company - they don't offer bank CDs but they do offer money-market funds.  Some are taxable and some are not - depends on the specific investment.  Taxable interest is taxable interest - you pay whatever "rate" your tax bracket puts you in.