When I first heard the phrase "vacation savings account," I thought this was a special type of savings account just for vacations. As it turns out, it’s nothing that mysterious. Rather, it’s simply your garden variety, everyday savings account, set up for the sole purpose of saving towards a great vacation. Some experts call it a "sub-savings account," which is a fancy psychological term that means "a checking or savings account that auto-drafts into a separate savings account set up for a specific purpose." Thankfully, what matters most isn't the lingo you use, but the action you take to earn your way towards taking the vacation of your dreams.
Here’s what to do to save up for a dream vacation you can take – even as early as next summer!
1. Choose your savings account wisely
Many financial institutions—banks, credit unions, online banks—are now offering what they call "vacation and club savings accounts." Don't get fooled and think you need to switch from your current bank just to get into one of these "special" accounts. You don't. What you do need to do is select a savings account with certain key characteristics.
Here’s what you’re looking for:
- High interest rate
- Online account management feature
- Linked accounts and fee-free unlimited auto-drafts
- Low (or preferably no) account admin fees
Here are 3 high-yield, low-fee savings accounts you may want to consider:
- Capital One 360: Formerly INGDirect, this FDIC-insured online bank waives all fees and account minimums, allows you to segment out funds into as many sub-savings accounts as you need, links to your checking account (even if it’s at an outside institution), and gives you a simple online account management system.
- SmartyPig: This free online institution is designed specifically for savers—especially savers who have a specific use for those savings. Read this great KCL post for more on Smarty Pig.
- Disney Vacation Account: If you are planning to visit one of the popular Disney theme parks, you may want to check out their savings programs and calculator tools.
2. Outline your "dream vacation budget"
It goes without saying that your ability to take your dream vacation will depend in part on where you want to go and how much you can save. But whether your unique situation predicts you will be hopping a plane next year or in five years, knowing how much money you need to save is where you must start.
Here’s how to figure it out so you keep costs as low as possible:
- Research your destination: Know when the "off-peak season" is so you can take advantage of lower rates.
- Use a travel calculator to estimate costs: A calculator like this one can be very handy since it helps you not to forget to add in costs you may not readily think about.
- Take a look at your available points: If you have mileage or other rewards points accruing, factor those in (and plan to increase them to the amount you need).
3. Set up your new savings account for success
Now it’s time to set up your new vacation savings account so it will be "out of sight out of mind"—i.e. saving steadily, but so easily you barely remember you have extra cash hidden away!
Here’s what you need to do:
- Open a dedicated savings account at your chosen institution: You chose your savings account in step 1.
- Link your checking (or separate savings) account to this special savings account: Your goal here is to set up auto-drafts into this special savings account.
- Calculate your monthly minimum required auto–draft amount: Here, factor in both when you want to take your vacation, and how much you need to save (from step 2).
- If possible, set up the drafts on a weekly basis: If you can afford it, experts recommend weekly auto-drafts because the savings will accrue faster and make less of a visible "splash" in the account the funds are being drafted from.
4. An example
This helpful example can give you an overview of how to use a vacation savings account most effectively.
- Vacation destination: Disney World, Orlando, FL
- Desired travel dates: (Lowest off-peak) September 8-11
- Number of travelers: 2 (one adult, one child)
- Estimated budget: $3,500
- Date you need the funds: August 1, 2015 (so you have 12 months to save)
- Monthly auto-draft to reach your goal: $292.00
- Auto-draft by week: $73.00
So here, you would set up a weekly auto-draft of $73 or a monthly auto-draft of $292 if you want to be able to travel to Disney World by next September.