Try This to Maximize Your Vacation Dollars

Bonus: you can also avoid the temptation to spend your vacation fund on other things.

There's something wonderful about having an upcoming trip to look forward to. A vacation is one of the most rewarding experiences to plan, budget, and save up for, in my humble opinion. But what if you could grow your saved vacation fund just by moving it to a new bank account?

If you've been scrimping and saving and now find yourself sitting on a pot of money for a future trip, it's a good idea to stash it in the right place. I'd recommend against keeping it in your checking account, as it'll be too easy to spend, plus it won't earn much (if any) interest. A high- yield savings account is certainly a great place for cash you need in the near term. But a certificate of deposit (CD) account could be even better, especially if you're still six months or more from your dream vacation. Let's talk about CDs and how they work, and why one might be a great place for your vacation fund.

What's a CD?

A certificate of deposit, or CD, is a special type of bank account that pays you a fixed rate of interest on the money you put in one in exchange for keeping the money in place for a set term. CD terms vary, but six months to five years are the most common terms you'll find. When you're choosing a CD term, bear in mind that you'll be charged a penalty (often, you'll have to forfeit one or two months of your precious interest that you've earned on the money) for pulling your money out early. So make sure you really don't need the money before the term is up.

Many banks offer CD accounts, including online-only banks, which have been paying very generous APYs on savings, money market, and CD accounts lately. If your vacation is in six months, you can open a CD with a six-month term. The best ones are paying as much as 5% right now. Let's say you stash $3,000 in one of these accounts. In six months, your money will have grown to $3,074.09. If your dream trip is a year away and you get the same APY, you'll end up with $3,150. Not too bad.

Why might a CD be a good place for your vacation savings?

In addition to getting a little bit of interest growth, there are a few other reasons to consider keeping your vacation fund in a CD account.

While you may snag a comparable APY on a savings account these days, you can of course access the money in your savings account pretty much whenever you want (bearing in mind that you may be limited to six or fewer convenient transactions if your bank is enforcing Regulation D). This makes a savings account an excellent place for your emergency fund, but if you want some incentive not to spend the cash you have earmarked for your trip, the threat of losing some of your interest might just be enough for you to leave that money alone. Plus, a CD account won't charge you a monthly maintenance fee, and your savings account might.

Speaking of keeping your cash safe, if you open a CD with an FDIC-insured bank, up to $250,000 of your money will be returned to you in the event of a bank failure. The recent collapse of SVB is weighing on everyone's mind lately, so knowing your CD account is protected will give you peace of mind. You can use the FDIC's BankFind tool to see if the bank you're considering is under the FDIC umbrella.

All in all, CDs have some pretty cool perks. And if you've got a chunk of money put aside for any goal in the not-too-distant future, be it a much-needed vacation, a car purchase, or buying a home, they're worth considering to help grow your money and keep it safe.