A common way people put aside money for a vacation is to set up a special savings account with their financial institution. But there is another approach you may not have considered – a CD. The financial experts at The Motley Fool explain why it can be a great idea:
If you have money set aside for your upcoming summer vacation, you probably have it in a basic savings account or maybe even a high-yield savings account. …There could be a better option though. Rather than just leaving your money in savings, you may want to buy a 3-month certificate of deposit instead.
Most CDs are FDIC insured like savings accounts are, so you won't be putting your money at risk if you use your vacation fund to buy one. And you can easily find CDs at a huge number of banks and other financial institutions and buy in without any investing knowledge at all.
Now, CDs require you to commit to leaving your funds invested to avoid penalties -- but there are a variety of different term lengths (often ranging from three months to five years) available. So you don't have to make a huge time commitment.
Since summer vacation is coming up pretty soon, you'll most likely want to choose a 3-month CD, which would enable you to withdraw your vacation fund right around the time summer is getting underway.
A CD can make good sense for your travel funds for a few key reasons.
First, CDs generally tend to offer even higher yields than the best savings accounts. So you can earn a little bit of extra money over the coming months compared with if you have your cash in savings. Once you buy your 3-month CD, your rate is also locked in and guaranteed for the duration, while savings accounts have variable rates. You won't have to worry about earning less interest than you thought you'd get (which could be an issue if savings account rates fall).
Perhaps even more importantly, though, since CDs require you to lock up your money, buying one should help to ensure you don't tap your vacation fund ahead of schedule. The fact you'd face a penalty for taking out the money can serve as an added deterrent, so you aren't tempted to withdraw it to cover today's expenses instead of saving it for your upcoming vacation as you planned.
Since CDs offer all these benefits, it's worth considering whether you should buy a 3-month certificate of deposit with your vacation savings. Doing so may be just the ticket to ensuring you have the funds you need for a truly memorable summer vacation experience.
You can read the full article here.
Spend your time focusing on the fun details of your upcoming trip instead of worrying about how you will pay for it. With your money secure and growing in a CD, you can relax knowing you will have the funds you need for the vacation you want. Bon voyage!