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Now that the holidays are over, and the long days at home drag on, dreams of post-COVID travel may be helping you keep your spirits up. As COVID-19 vaccines make their way across the world, it will become possible to explore new places again and leave some of the worries of the past year behind.
Minimally restricted travel won't be a reality for some time, though, which gives you plenty of opportunity to plan and save up for that vacation you've been yearning for. Here's how to use this time to save for travel, no matter your budget.
Keep Vacation Savings Separate
This advice works for any saving goal, not just vacations: Separate your trip savings from the rest of your money so you're less likely to dip into it.
That often means automatically transferring a certain amount from your checking account to a dedicated savings account each pay period or each month. It can also mean placing every $5 or $10 bill you get into a jar at home and committing not to use that money for anything else, or cutting a subscription or membership you don't use and transferring that money to savings instead.
Make Your Savings Work for You
If you're going to put your savings aside in a separate account, you might as well make sure your money can grow while it's there. While money kept in a typical savings account earns an almost negligible return from interest (also called a yield), there are other options that can add a tidy sum to your vacation fund.
You can earn more interest by setting up a high-yield savings account, CD or money market account and sending vacation savings there rather than leaving the money in your checking account. All three of these options are FDIC-insured, just like traditional savings accounts.
- High-yield savings account: The return on a high-yield savings account may be lower due to the economic impact of the pandemic, but it'll still net you a higher rate of return than a standard savings account. Money in a savings account can be accessed anytime, but it may limit the number of transactions you can make per month and have a minimum required balance.
- Money market account: Money market accounts are similar to high-yield savings accounts, and may have a higher rate of return (with some trade-offs). For instance, a money market account may have a higher required initial deposit, or minimum monthly balance.
- Certificate of deposit (CD): With this savings option, your money is kept inaccessible to you in an account for a certain period of time. Once the account matures and the balance is accessible again, you will have earned a return on top of what you put in. CD terms can be as short as six months and as long as five years. If you already have a certain amount saved up, putting it into a CD can help avoid any temptation to spend it.
Use Credit Card Rewards Wisely
In non-pandemic times, travel rewards credit cards offer responsible credit card users an enticing proposition: Spend money using a specific credit card and earn points that can be redeemed on purchases like hotels and airfare, letting you travel for less.
With travel dropping off precipitously since the beginning of the pandemic, rewards cardholders don't have as many opportunities to redeem their points. But these cards could still prove useful. You could continue to earn points and plan to use them all on your big post-COVID trip. Or you can make use of limited-time redemption options some card issuers are offering, knowing that you can't enjoy many of their usual perks, such as savings on airfare.
When using rewards credit cards, it's important to pay off your balance each month so you don't negate your earnings with accrued interest charges. Paying off the balance also prevents your credit utilization (the amount of available credit you're using) from jumping too high, which can negatively affect your credit score.
Check for Intro Bonuses
If you plan on opening up a new bank account for vacation savings, look for one that offers a cash intro bonus simply for opening the account and making a deposit. If you already have some savings, this could net you some extra money to go toward your vacation.
Make sure to check the requirements to get the bonus, as rewards amount and the required balance can vary greatly. For example, our partner Citibank offers a $300 bonus to new customers who open a checking and savings account—but you must deposit $15,000 across both accounts to get it, and maintain that balance for at least 60 days.
Another option is to look into credit card intro bonuses, which provide an introductory reward for spending a minimum amount on the card within a certain period of time, such as three months. If you're already planning to make a large purchase soon—furniture for your home office, for instance—an intro bonus can get you an extra few hundred dollars or thousands of points to put toward a vacation.
Find Fun Ways to Get Motivated
Saving money can be fun, believe it or not. During a period when concerts, comedy shows and group fitness classes aren't as accessible in much of the country as they once were, why not make a game of an activity that otherwise wouldn't be all that exciting?
You can make saving a little more interesting using an app like Long Game, which lets you play games to win cash prizes as a reward for meeting saving goals. Another app, Qapital, helps you stay on track to save by setting up "Rules," like saving whenever you hit certain targets on the workout apps Fitbit or Strava. You can even set up Rules that kick in when you're indulging in something—Qapital can send money to your savings every time you post to Facebook, for instance. You can also save for a vacation as a couple on Qapital using its Dream Team feature.
There's always the tried-and-true method of adding competition into the mix. Set up a challenge with a friend to meet a savings goal, or maybe by skipping takeout for a month or using only cash instead of credit cards.
Cut Down on Your Expenses
If you've been working from home since the beginning of the pandemic, it's likely you've already reduced your spending on things like gas and parking. But you may also want to take stock of your spending and make some money-saving changes that can net you some money toward your future travel plans.
If you don't already have one, this will involve creating a budget that keeps track of how much you earn from all your income sources, and how much you're spending on a monthly basis. The simple act of accounting can help you notice unnecessary spending that works against your travel savings goals. However, if you're still not sure what you might be able to cut back on, start by taking another look at things like subscription services you don't use much, food costs and other transportation-related expenses.
You might not need to cut things entirely, either. In some cases you can instead opt for a plan that works better for your budget. For example, instead of canceling a streaming service completely, you could think about switching to a version of the service that's cheaper but has ads.
Post-COVID Travel Planning Tips
When it comes time to book travel, keep these items in mind so you can put your savings to good use:
- Don't forget travel insurance. Even when you're vaccinated and travel ramps back up, new coronavirus variants and unforeseen economic consequences of the pandemic will likely make trip plans uncertain for a long time to come. Travel insurance can help protect your money if you need to cancel a vacation. Some credit cards offer trip cancellation insurance, but check their policies to understand the covered circumstances. It's also wise to purchase insurance to help cover any medical expenses that might come up while traveling, including medical care if you become ill or require coronavirus testing in another country.
- Review airline cancellation policies. Many airlines have relaxed their change fees and cancellation fees in order to attract customers during the pandemic. But that doesn't mean you're home free if you need to update your travel plans later this year or next year. These policies could change again once travel picks up, so double-check how much it will cost you to change flights or cancel your trip altogether, and opt for a flexible airline if possible.
- Travel slower. Before the pandemic, perhaps your dream was to backpack across a whole continent, staying in hostels along the way. After the difficulties of 2020, that amount of travel may no longer hold much charm. For safety reasons, and to make sure you really savor the place you've chosen to go, it may be wise to stay put in one location and minimize flights, transfers and multiple hotel stays. A longer trip at one vacation rental, for instance, or house-swapping with another person or family, can also save you money over a more lavish vacation.