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What is a Holiday Savings Account?
A holiday savings account is an account where you deposit money that you have set aside for a future vacation. The added benefit of using a separate account for your vacation funds is that your savings can earn interest, depending on your balance and the interest rate.
Benefits of a Holiday Savings Account
Saving significant amounts takes time, patience, and dedication, but a dedicated holiday savings account benefits you beyond just helping you save money for your time away. It allows you to make the most of the trip.
Progress You Can See
Consolidating all your savings into one account can make it difficult to determine how much you’ve saved for vacation compared to emergency funds and other goals. “Keeping vacation savings in a separate account is a great way to assess how much you actually have for spending on a trip so you don’t have to worry about going over budget,” Philbrick said.
Specific Goals
Vague saving goals can be uninspiring because they lack the anticipation that a specific goal can bring. Having a holiday savings account with a clear objective from the start can provide you with ongoing motivation to stay committed. By setting a goal separate from daily spending means you don’t have to think about the account frequently, especially if you set up regular automatic transfers. “By keeping that money out of sight and out of mind, you’ll be less tempted to spend it on other things and more likely to reach your holiday savings goals,” Philbrick said.
Maintaining a Safety Net
You’re less likely to dip into your emergency account to cover vacation costs if you maintain a separate holiday savings account as part of a well-planned budget. An emergency savings account is an essential part of a healthy budget because it allows you to handle unexpected expenses without going into debt. It can be difficult to recover from emergency costs like healthcare bills or car repairs if you don’t have an emergency fund. You can avoid developing a habit of withdrawing from your emergency account to cover non-emergency expenses when you have a separate account for short-term saving goals. Instead, you can cultivate the approach of restricting withdrawals from your emergency fund to cover non-emergency expenses.
Avoiding Holiday Debt
Rather than putting your vacation on a credit card and paying interest, you’ll have the advantage of fully financing your holiday. And you can even put your vacation on a rewards travel credit card to earn rewards and enjoy travel perks. Just be sure to use the funds in your holiday savings account to pay off the balance immediately.
How to Open a Holiday Savings Account
You can open a savings account with your current bank or take advantage of a high-yield savings account from another bank. Just follow a few simple steps.
Compare Account Fees and Features
Check the fees, services, and interest rate on the account you’re considering opening whether you are opening it with a new bank or your current bank. Some savings accounts may require a minimum deposit or may require maintaining a minimum balance to avoid monthly fees.
Applying and Providing Identification
You will need to provide your personal information and prove your identity if you are opening an account with a new bank. This includes your name, Social Security number, and a copy of your driver’s license or passport. Most banks will allow you to open a new savings account online in just a few minutes if you have the proper documentation.
Make Your Initial Deposit
After opening your new account, you’ll be able to link your checking account and make your initial deposit. Some banks may require a minimum deposit amount. You can set up automatic transfers from an existing account, such as your checking account, to your holiday savings account to save a certain amount regularly. This will help you achieve consistent saving.
Best
Holiday Savings Accounts
Some banks offer “clubs” for savings that are specifically designed to help you save for a holiday. These clubs are similar to Christmas clubs in that you cannot withdraw funds until your balance reaches a set savings goal or before a certain date. This can be a useful feature for savers who are not very disciplined. You can withdraw your money early, but you are likely to incur a penalty.
In contrast, look for a bank that offers a savings bonus after you have had the account for a certain period of time, usually several months. The bonus might be as little as 0.1%, but it can contribute to enjoying a sunset cocktail while on vacation. You may also want to look for an account that limits cash withdrawals from ATMs so you are not tempted to touch the funds before the holiday.
A high-yield savings account is a great place to save for a holiday because it pays a higher return than a standard savings account. However, it doesn’t come with a long-term commitment like a certificate of deposit (CD).
Conclusion
Holidays are meant to relieve stress, not add to it. Your enjoyment will undoubtedly increase when you can finally enjoy something that has been on the horizon for months and months without worrying about the cost. It requires discipline, but it can be achieved with the right tools and proper planning.
Frequently Asked Questions (FAQs)
When should you set up a holiday savings account?
There’s no time too early to open a savings account for your holiday. The more time you have to save, the bigger your budget will be. You can determine a more precise timeframe by estimating the cost of the trip and dividing it by the amount you can realistically save each month. The result is the minimum number of months before the holiday that you should start saving.
How much money should you have saved before going on holiday?
The amount you should save depends on your destination, the time of year, the number of people going on the trip, and the length of your stay. According to a report from Expedia, the average amount saved for holidays in 2021 was $3,444. But there are ways to travel on a smaller budget. For example, traveling during the peak season or driving instead of flying can reduce costs.
Source: https://www.thebalancemoney.com/how-to-save-more-using-a-vacation-savings-account-5201162
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