Smarter Emergency Funds: How I Use Vanguard Cash Plus and VMFXX to Protect and Grow Cash

When it comes to retirement planning and financial security, an emergency fund is non-negotiable. I always recommend keeping three to six months of expenses on hand or even a year or more if you’re self-employed or close to retirement. The problem is, too many people let that money sit idle in a checking or savings account earning next to nothing. Inflation eats away at the value, and it’s a missed opportunity. That’s why I look for ways to make cash work harder without sacrificing safety or access. Two tools I use are Vanguard’s Cash Plus account and the Vanguard Federal Money Market Fund (VMFXX), and together they offer a smart layering strategy for emergency reserves.

Vanguard’s Cash Plus account is like a high-yield digital checking and savings hybrid. Right now, it pays 3.65% APY, it’s FDIC insured up to $1.25 million for individuals ($2.5 million for joint accounts), and it integrates seamlessly with direct deposit, bill pay, Venmo, and PayPal. Funds move as quickly as the next business day, and there are no minimums or fees for electronic statements. For cash I might need right away whether for an unexpected expense, a home repair, or even just managing monthly bills this account gives me both protection and flexibility.

VMFXX, on the other hand, is where I park cash that I don’t need for day-to-day spending but still want working for me. It invests in short-term U.S. government securities, carries a low expense ratio of just 0.11%, and as of late July 2025, offers a 7-day SEC yield of 4.22%. It’s designed to preserve capital while paying out a competitive return. Unlike Cash Plus, VMFXX isn’t for swiping at the grocery store it usually takes one to two business days to transfer money out. But for an emergency fund strategy, it plays a crucial role.

Here’s how I layer them: I keep one to two months of expenses in Cash Plus for immediate access, and the rest in VMFXX for better yields. This way, I’ve got liquidity for true emergencies but I’m not leaving thousands of dollars earning next to nothing. Both accounts are variable rate, meaning yields will move with the market, but I’d rather capture those rates than watch inflation erode idle cash.

Of course, neither account is perfect. Cash Plus and VMFXX are fully digital there’s no ATM access or paper checks—and it’s important to understand the difference between FDIC and SIPC protection before moving large sums. And while I use Vanguard, Fidelity and Schwab have similar offerings, so you don’t need to change brokers to adopt this strategy.

At the end of the day, building an emergency fund isn’t just about having cash it’s about putting it in the right places. By splitting between Cash Plus for access and VMFXX for higher returns, I can protect my reserves, outpace inflation, and simplify my finances, all within the Vanguard ecosystem I already use. Don’t let your emergency fund sit idle. Put it to work strategically, so it’s there when you need it and growing when you don’t.

All writings are for educational and entertainment purposes only and does not provide investment or financial advice of any kind.