Whether you always travel over the holidays, could really use a big summer trip, or just want to get away for a few days, planning a vacation can be an exciting motivator. However, traveling can also be pricey, with the average week-long trip in the U.S. costing $1,758 per person, according to recent data. This means that for a family of four, you could easily be looking at over $7,000!
The more people you take on your trip, the further you travel, the longer you stay, and the more desirable your accommodations, the more you can expect to pay for your trip. Even if you shop around for deals, pay with points or miles, and use rewards programs, your next vacation could still manage to break the bank if you don’t plan ahead.
A high yield savings account can be a great tool for planning your next trip, though, helping you not only budget for this jetsetting adventure but also maximizing the money you save ahead of time. Here’s a look at how and why you should consider using a high yield savings account to plan for your next vacation.
A high yield savings account, or HYSA, is exactly what it sounds like: a dedicated savings account designed to maximize the return (yield) on your deposited savings. This depository account is offered by a number of banks, credit unions, online banks, and other financial institutions, and often comes with above-average interest rates.
An HYSA is often a free account, though some banks may have monthly maintenance fees. If a maintenance fee is charged, you may be able to waive this by meeting certain minimum account balance or minimum deposit limits.
Depository accounts like HYSAs are not intended for everyday use. You generally won’t receive a debit card or checks for this account, and you may even be limited in the number of outgoing transactions/withdrawals you can make each statement cycle.
Whether you’re in the midst of planning a trip or just want to start saving for your next big, unknown adventure, opening a high yield savings account can help you get there successfully.
For most people, paying for a trip that costs thousands of dollars could easily destroy even the strongest of budgets. If you space the cost of that trip out over a longer period of time, though, you can fit this savings goal into your monthly budget without too much of a pinch.
The key here? Start today, even if you don’t have your vacation plans nailed down yet. Set aside whatever you can afford into a dedicated “vacation fund” HYSA. Once you know where you’re going and when, you can adjust your monthly savings contributions to ensure you meet your goal in time.
The biggest benefit to a HYSA is that it earns a higher interest rate than checking accounts or even standard saving accounts. Depending on how much you tuck away and how long you save that money, you could buy souvenirs, pay for a nice dinner, or even get a massage with your partner on the interest earned alone.
The most competitive HYSA interest rates can easily be 10x (or higher) the national average savings rate. Be sure to shop around before you choose your account, though; some of the best HYSAs are offered by online banks and institutions, which might not be where you currently bank, or even on your radar yet.
While it’s possible to save for a big expense, such as a vacation, without a dedicated account, you might also sabotage yourself in the process. Sometimes, having eyes on that money constantly can give you a false sense of security, making you think that you don’t need to continue saving as aggressively as you have been.
If you opt for a savings account at your everyday banking institution, your money could be a quick ACH transfer away. If you’re eyeing a spontaneous purchase or need a little extra cash one month, it can be very easy to justify a small transfer and tap into those vacation funds.
By putting your money in a high yield savings account, though — particularly one at a different bank — you can ensure that the funds are out of sight and out of mind. This can also put a few days’ transfer time between you and that money, creating an automatic cooling period anytime you think about tapping into the cash.
If you want to save for vacation without even thinking about it, you can also use most HYSAs to automate the process. Simply set up automatic transfers on a regular basis, such as the first of the month or whenever your paychecks are scheduled to hit your account.
This way, you’re contributing to your vacation fund before you have the chance to spend that money elsewhere. And even if you forget one month, your bank will remember and you’ll still be on track for your goals.
While high yield savings accounts are great for big goals like vacations, there are other products you could also consider in lieu of — or in combination with — your HYSA. Some options to consider include:
Borrowing a personal loan
Withdrawing funds from your home’s equity with a HELOC
Utilizing a 0% APR credit card offer
Whether you’re planning to travel within your state or across the world, planning ahead for your next trip can take away much of the financial stress that often accompanies vacations. With a high yield savings account, you are able to not only budget and save for your travels long before it’s time to pack, but you can also earn free money toward your trip in the form of compound interest.
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