I currently have a large sum of cash in a "Rewards Account" at my credit union. The interest rate is at 2.75%. It seems to drop every year. It started out at over 4%. Basically, I am looking to find a "better savings account" that offers me an easy way to liquidate some assets when needed. I plan on keeping at least $10K in the credit union account.

I would like to purchase $10K worth of shares of the Vanguard Total Stock Market Index Fund Admiral Shares.

If I need to sell some shares, are there any fees or penalties for having a total investment portfolio under $10k in a Vanguard Admiral fund?

2 Answers 2


I contacted Vanguard with this question; they responded with:

All fund accounts that hold Admiral(tm) Shares are reviewed for eligibility on an annual basis, typically in June. If any of your Admiral Shares fund accounts have balances below the required level at the time of this review, we will notify you by mail so that you'll have an opportunity to increase the balance.

If a fund balance subsequently remains below the required minimum, we will convert your account in that fund to Investor Shares. Conversions are not a taxable event.

Your fund balance is solely determined by market value, so if the market value of your position in the fund is below the minimum threshold for Admiral shares (which is $10K or $50K, depending on the fund) when Vanguard reviews your account, they'll contact you. It doesn't matter if the decline in value occurred because you sold shares or because the market moved; Vanguard will still downgrade you if you don't top up your position.

In terms of taxes, if you sell shares in a non-tax-sheltered account, you may incur capital gains and will therefore pay taxes on that amount, but Vanguard themselves won't charge you any fees or penalties when they downgrade you.

One more note on the rest of your question. Remember that a mutual fund investment isn't as liquid as a savings account; you'll face a delay between selling your shares and the settlement of your funds, so in terms of liquidity, a mutual fund investment isn't a substitute for a savings account. You should always have an emergency fund that covers at least 3-6 months of living expenses set aside that is highly liquid, regardless of your other investments.

Also, you'll face much more volatility with an investment in an equity fund. For longer-term investments, this isn't necessarily a problem, but if you might need these funds for emergencies, you probably don't want to expose yourself to the risk that when you might need the funds when their value is at a low point.

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    One thing to keep in mind is that Vanguard believes in encouraging buy-and-hold investing and used to (maybe still does) charge fees for short-term investments in many of its funds. If you buy shares in these funds and sell within X days, there is a fee (1 or 2%) that is deducted from the proceeds. Also, since $10K has been mentioned, almost all Vanguard funds charge a $20 annual maintenance fee for accounts with less than $10K in them. Thus investing $10K exactly in a fund and then redeeming some of it (possibly soon) may be more expensive than the OP thinks. Jul 16, 2013 at 2:43
  • @DilipSarwate Great point; is the $20 annual maintenance fee different from the $20 annual account service fee mentioned on the comparison page I linked to? Is it on a per-fund basis? (And as always, if you don't mind I'll edit your comment into my answer) Jul 16, 2013 at 2:51
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    The $20 account service/maintenance fee is on a per-fund basis. Also, many funds bar a reinvestment in the fund for 60 days after a redemption from the fund. Furthermore, receipt of the cash from a redemption can be delayed up to 7 days after the request has been made. So the funds do differ from savings accounts in many important ways. Jul 16, 2013 at 3:06
  • Excellent answer, thanks. I don't plan on needing the funds soon. I am looking for a way that my money can earn more than currently in my CU account. I plan on investing a monthly amount into the Vanguard account as well. Jul 16, 2013 at 10:44

I am adding a separate answer to address one point not mentioned in @JohnBensin's answer.

Vanguard funds that offer Admiral shares use a separate identifier for the Admiral shares, for example VFINX for Investor Shares in their S&P 500 Index Fund and VFIAX for the Admiral shares in the same S&P 500 Index Fund. A conversion from one class of shares to another class can occur involuntarily (forced by Vanguard because of low balance) or semi-voluntarily (Vanguard reviews large investments in their funds and automatically upgrades them to Admiral shares, but this review occurs quarterly as I remember it) or upon request (the shareholder requests an upgrade on the grounds of a large balance rather than waiting for an automatic upgrade). However, in all cases, the conversion is not a taxable event as John's answer notes, and the amount of money that you have in the fund remains the same before and after the conversion.

However, the number of shares that you own after conversion can be quite different from the number of shares that you owned before the conversion. For example, Vanguard Health Care Fund Investor Shares (VGHCX) are priced at (approximately) $175 per share as of yesterday while the Admiral Shares in the same fund (VGHAX) are priced at approximately $74! So a conversion from one class of shares to the other can lead to a very significant change in the number of shares that you own but the total value of the investment will be the same before and after the investment, and no capital gains (or losses) are recorded (or reported to the IRS) for the conversion. It can be a lot of fun updating money management programs such as Quicken following the conversion.

  • Great answer; thanks for covering quite a bit that I missed! Jul 18, 2013 at 17:48
  • Excellent. Thanks for taking the time to extend the answer. I wish I could mark both. Aug 10, 2013 at 1:39

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