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Guide to Vacation Savings Accounts

Guide to Vacation Savings Accounts
Jacqueline DeMarco
Jacqueline DeMarcoUpdated March 1, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
It’s easy to daydream about jetting off to an exotic destination, bustling city, or serene beach. It’s not so easy to make that dream vacation a reality. Between transportation, accommodations, activities, and food, vacation costs can add up quickly. That doesn’t necessarily mean you can’t go on vacation. It might, however, mean you’ll need to start saving well in advance of your trip.That’s where a vacation savings account comes in. Read on to learn exactly what vacation savings accounts are and how they work.

What Is a Vacation Savings Account? 

A vacation savings account is simply a separate savings account where you deposit money specifically earmarked for a future vacation. Some banks and credit unions offer special vacation savings accounts, sometimes called “vacation club” accounts. These accounts will often incentivize saving by allowing you to give your account a nickname (such as “Hawaii Dream Vacation”) and set a savings goal; if you make withdrawals before you reach that goal, you’ll get hit with a fee.However, any type of savings account can work as a vacation savings account. The key is to keep your vacation money separate from your regular spending (that’s what your checking account is for) and also separate from your other savings goals (like your emergency savings), so you don’t inadvertently spend it on something else.Ideally, you want your vacation savings account to pay a competitive annual percentage yield (APY) to help you meet your vacation goal faster, and charge no or minimal fees that could chip away at your savings. A high-yield savings account at an online bank can work well for a vacation savings account, but there are also a number of other options (more on that below).Recommended: Guide to Savings Plans

Why Is A Vacation Savings Account Advisable? 

One reason why setting up a separate vacation savings account (versus commingling your vacation savings with other savings) is smart is that you’ll be less likely to dip into the money when nonvacation-related expenses pop up. Saving for a vacation ahead of time also helps avoid the need to take on debt. If you don’t have money saved for the trip and use a credit card to cover the costs, you can end up paying significantly more for that trip (due to high interest payments) than it actually costs. And vacations are already expensive enough.Recommended: 7 Ways to Save Money During High Inflation 

Benefits of a Vacation Savings Account

There are a number of benefits to opening a vacation savings account. Here are a few to consider.

You’ll Have a Specific Goal

We all know saving is a good idea, but without a specific goal you can picture (like a vacation), it’s often hard to find the motivation to spend less and save more.

You Can Track Your Progress

When you set up a separate vacation account (and, ideally, make regular deposits or transfers into the account), it’s easy to see your progress over time. Watching the account grow can also help motivate you to stick to your budget —  even put in a little extra whenever possible.

You Can Set It and Forget It

If you set up automatic monthly transfers into your vacation savings account, you won’t have to remember to transfer money into savings each month, or wonder if you’re saving enough. You’ll be able to work toward your vacation savings goal without doing anything at all.

You Can Enjoy Your Vacation Even More

When you’ve saved enough to cover the cost of your trip, you can enjoy your vacation without guilt — or worries about how you’ll ever pay off that credit card bill. You earned this trip. Now, you can relax and enjoy it.Recommended: 10 Key Benefits of a Savings Account 

Vacation Savings Account Options

Some banks offer specific vacation accounts or “clubs” to help you save up for an upcoming trip. However, an account doesn't have to be labeled as a “vacation” account to work well as a vacation savings account. Here are some options to consider.

Regular Savings Account

You might want to open a regular savings account at a traditional bank or credit union, perhaps the same one where you have your checking account for easy transfers. Regular savings accounts pay relatively low annual percentage yields (APYs). However, they keep your money safe, since they are federally insured for up to $250,000 per account holder, per bank.Since these accounts are designed for saving rather than spending, you’re typically limited to no more than six withdrawals per month. Even though the Federal Reserve lifted the six-per-month limit in 2020 in response to the pandemic, many banks still enforce this limitation and will charge a fee if you exceed six (or, in some cases, nine) transactions per month.Recommended: How to Maximize Savings

Money Market Account

Money market accounts are savings accounts that offer some of the features of checking accounts, such as check-writing privileges and debit cards. These accounts typically pay a higher APY than regular savings accounts, but often require a high opening deposit as well as a high minimum balance to avoid fees. Like other savings accounts, your money is insured, and you are typically limited to six withdrawals per month.

High-Yield Savings Account

A high-yield savings account is similar to a regular savings account except that it pays a substantially higher interest rate than the national average for savings accounts. You can often find the highest APYs at online-only banks. Because these banks generally have lower overhead costs than banks with brick-and-mortar locations, they are often able to pass those savings on to their customers.Like regular savings accounts, the money in a high-yield savings account is federally insured and accessible. Like other savings accounts, you are typically limited to six withdrawals per month from a money market account.

Certificate of Deposit (CD)

A certificate of deposit (CD) is a type of savings account with a fixed interest rate that’s usually higher than a regular savings account. It also has a fixed term length and a set date of withdrawal, known as the maturity date. Depending on when you plan to take your vacation, you might choose to get a six-month, 12-month, or 18-month CD. The advantage of using a CD for your vacation fund is that if you withdraw your funds before the CD matures, you’ll typically pay a penalty.Like regular savings accounts, CDs are available at banks and credit unions and are federally insured. When you open a CD, you lock in your APY. That means even if market rates go down, you still get the higher rate. If market rates go up, however, you won’t get the higher rate.  Recommended: What Are the Different Types of Bank Accounts? 

Tips for Opening a Savings Account 

Here are some steps that can help you find and open a vacation savings account.

Compare Rates, Fees, and Minimums

Ideally, you want a savings account with a competitive APY, since the higher the APY, the faster your vacation savings will grow. But also keep an eye on any balance requirements. In some cases, you may need to maintain a certain balance in order to get the advertised APY. Also, take a look at fees. Some savings accounts charge monthly account fees, and some don’t. Some may charge fees only if your balance goes below a certain threshold.

Apply for an Account

Once you find an account you like, you’ll need to apply. If you’re opening a new account at the same bank where you already have an account, you may be able to quickly open a new savings account online. If you’re applying with a new bank, the process can be slightly more involved. You’ll likely have to provide your personal information and proof of identity (such as a copy of your driver's license or passport). Depending on the institution, you may be able to apply entirely online, or you may need to visit a branch.

Fund Your Account

Some banks require you to make a minimum initial deposit (which could be anywhere from $25 to $100), while others don’t. Even if you’re not required to make an upfront deposit, you may want to. This can get your vacation savings off to a good start and allow you to start earning interest right away.You can typically transfer funds from an existing account at the same or at a different bank or use cash or a check. Once you’ve funded your vacation savings account, consider setting up an automatic, recurring transfer from your checking to this account for the same day each month. Recommended: 52-Week Savings Challenge Guide

Other Tips for Saving for Your Next Vacation

If you’ve decided to start saving for an upcoming vacation, here are some tips to help you meet your goal.
  • Estimate the cost of your trip. To set your savings goal, you’ll need to make a rough calculation of how much the trip will cost, including transportation, lodging, activities, meals, and souvenirs.
  • Determine when you want to travel. Your travel date will determine how much time you have to save the money for your trip.
  • Calculate your monthly savings target. If you already have some savings you can put toward the trip, subtract that amount from the total trip cost. Then take that number and divide it by the number of months you have to save. This will give you a monthly savings amount. Thanks to the power of compounding interest (which is when the interest you earn also earns interest), you could meet this goal a little sooner than you anticipate.
Recommended: 6-Month Money Saving Challenges

The Takeaway

Travel can be expensive, but you can make the cost a lot more manageable (and avoid running up debt) by opening a vacation savings account well ahead of your anticipated travel date. You can choose a savings account specifically designed to be a “vacation savings” account, or simply open any type of savings account you like and designate it as your vacation fund. To meet your savings target faster, you’ll want to look for a savings account that pays a competitive APY and charges low or no fees. Not sure where to start your search for a vacation savings account? With Lantern by SoFi’s online banking marketplace, it’s easy to compare high-yield savings accounts based on APY, fees, and balance minimums.Lantern can help you compare online savings accounts and find today’s best rate.

Frequently Asked Questions

Should I have a vacation savings account?
What is the best way to save for your vacation?
How much should I save every month for my vacation?
How soon should I start saving for a vacation?
Photo credit: iStock/Oleh_Slobodeniuk

About the Author

Jacqueline DeMarco

Jacqueline DeMarco

Jacqueline DeMarco is a personal finance writer and editor based in Southern California. While she spends the bulk of her time writing about complex financial issues, she also tackles a variety of subjects ranging from food to fashion to travel. Her work can be found across dozens of publications such as Credit Karma, LendingTree, Northwestern Mutual, The Everygirl, and Apartment Therapy.
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