Millions of Americans are expected to hit the road for the holidays this year, and travel prices are a huge concern. According to the online travel agency site Hopper, 41% of its users are worried about affording the travel they’ve already planned. It’s hard to enjoy a vacation when you don’t know how you’ll pay for it, especially with credit card interest rates so high.
Though the Federal Reserve’s battle to bring down inflation by hiking interest rates makes borrowing money more expensive, there’s one advantage if you need to put aside some cash. Better-than-usual annual percentage yields on savings accounts and certificates of deposit mean you’ll get bigger returns on your savings.
Whether you’re saving money to cover your holiday trip, or you’re already plotting out next year’s vacation, here are three ways to save while rates are still high.
The latest on savings and CD rates
Experts predict that APYs on savings accounts and CDs will largely hold steady over the next week. The Fed, which will evaluate inflation figures and the state of the economy at the end of this month, is likely to hold its benchmark rate in place.
The average high-yield savings account rate remains at 4.82% this week, based on the banks we track at CNET. Only one bank ticked up its savings rate: Bask Bank increased from 5.00% to 5.10%. Newtek Bank and UFB Bank still offer the top rates on our list at 5.25%. Though savings and CD rates are still high, three-month CDs are down this week, with an average of 3.32% APY.
| CD Term | 3-month CD | 6-month CD | 1-year CD | 3-year CD | 5-year CD |
| Average APY | 3.32% | 4.75% | 5.28% | 4.32% | 4.11% |
3 ways to save for a vacation
Whether you’re traveling abroad or staying local, it’s important to draft a budget and save up before taking off. The average cost of a one-week vacation for one person in the US is $1,578, according to Bankrate. Depending on your destination, accommodations, meal plans and other factors, this price will vary. But with that in mind, here are three ways to save for your next trip:
1. Automate your savings
Automating how much you deposit into your savings account streamlines the process and restricts any mental barriers that might stop you from doing it manually. Once you develop a budget and settle on a pattern that works for you, put those transfers on autopilot.
“My biggest tip … is to automate your savings so that you are not relying on willpower alone,” said Kendall Meade, a certified financial planner at SoFi.
This method can come in handy if you’re having difficulty prioritizing saving or remembering to transfer funds every month. Whether you’re saving to build your emergency fund or vacation fund, automating transfers from your checking to savings can help you stay consistent without even thinking about it.
There are several ways to arrange automatic transfers from your checking to savings account. If both accounts are at the same bank, you can set up recurring automatic transfers between them. If your savings account is at a different bank than your checking account, send a portion of your paycheck each month to your savings automatically with direct deposit. Your employer should provide the direct deposit paperwork to facilitate this.
2. Create a sinking fund
A sinking fund is another term for a savings account, but instead of just stashing money away, you’re setting aside money for a specific purpose. Rita-Soledad Fernandez Paulino, who goes by “Soledad,” has three different sinking funds dedicated to travel: solo travel, travel with her partner and travel with her kids.
“I decide every year on my birthday how often I want to travel, and I start getting ideas about how much it’s going to cost before I start a sinking fund,” said Soledad, a personal finance coach, entrepreneur and founder of Wealth Para Todos.
After Soledad knows how much she needs to set aside for travel, she deposits money into different sinking funds. “I look at what extra cash flow I can actually put away, and every month I put away $700,” she said. Soledad also spontaneously adds any extra cash she earns throughout the year directly into one of her accounts.
The exact amount you set aside will depend on your budget, your travel goal and how much you have in discretionary income -- that is, extra income you have after covering basic necessities, taxes and household bills.
You can also use online savings tools to streamline the process. Ally’s high-yield savings account lets you organize your savings into different categories with buckets (like a sinking fund), eliminating the need to open multiple savings accounts and helping you visualize what you’re saving for. Think of each bucket as a digital envelope with cash for a specific short-term goal, such as a vacation, home renovations, emergencies and so on.
Similarly, you can create recurring transfers into savings vaults with a SoFi savings account. When you open up a SoFi savings account, you automatically get a checking account. If you opt to activate “roundups,” SoFi will take any purchase on your debit card, round it up to the next dollar and deposit the difference into your savings vault, helping you save a little at a time.
3. Use a cash-back reward credit card
Rewards credit cards can be a great asset for travel and put some money back in your pocket, but this comes with a caveat. Before you consider putting a big expense on a credit card, such as airline tickets or accommodations, make sure you charge only what you can afford to pay back in full. If you overspend and can’t cover the entire purchase when your bill is due, the interest you’ll owe will offset any rewards you earn.
“It’s a skill to be able to charge something to a credit card, pay it off in full and not pay interest and instead get rewards,” Soledad said. Soledad likes to use her credit cards to book travel expenses because she’s guaranteed to earn cash back from it. She then relies on the money she’s growing in her sinking funds to pay the balance on her credit card.
“We can’t control interest rates, but credit card companies are pretty consistent in terms of their rewards,” Soledad said.
HYSA vs. CD for a vacation fund
Interest rates for high-yield savings accounts and CDs are both good right now, but HYSAs are often better for short-term goals. This is because you can add money on an ongoing basis and access your funds more easily than with a CD.
“A high-yield savings account is great for emergency funds, goals that you may not have a large sum saved up for yet, or that you don’t know exactly when they will occur,” Meade said.
Unlike a high-yield savings account, a traditional CD has a fixed interest rate for a specific term. You make a one-time deposit and generally can’t add funds until after maturity. If you need the funds before the term ends, you’ll usually pay an early withdrawal penalty. Still, CDs can work for some short-term goals if you already have a significant amount saved and know when you’ll use the funds in the distant future, such as an upcoming vacation, Meade said.
More savings advice
