Savings Account: If your savings are in a standard savings account, they are typically safe, even during a recession. Consider the interest rate and whether it's keeping pace with inflation.
Keeping your savings liquid is particularly important during a recession, because if you're laid off from your job — which could happen during an economic downturn — having a cushion of easily accessible funds can be a lifesaver.
Inflation Is Eating Away at Your Funds
According to the Bureau of Labor Statistics, the average rate of inflation from April 2023 to April 2024 was 3.4%. If you've been keeping your money in a savings account with a lower yield than the rate of inflation, you should switch over to a higher-yield account.
Banking regulation has changed over the last 100 years to provide more protection to consumers. You can keep money in a bank account during a recession and it will be safe through FDIC and NCUA deposit insurance. Up to $250,000 is secure in individual bank accounts and $500,000 is safe in joint bank accounts.
If there's an emergency, withdrawing cash or transferring money to a checking account are the most convenient ways to spend the money in your savings account. But it's best to minimize these transactions as much as possible, so you don't exceed your bank's limits and incur a fee.
What Are the Biggest Risks to Avoid During a Recession? Many types of financial risks are heightened in a recession. This means that you're better off avoiding some risks that you might take in better economic times—such as co-signing a loan, taking out an adjustable-rate mortgage (ARM), or taking on new debt.
The Bottom Line
CDs are a comparatively safe investment. They can provide a stable income regardless of stock market conditions when they're managed properly. Always consider emergency money that you might need in the future when you're thinking of purchasing a CD or starting a CD ladder.
Cash delivers safety in troubled times. Experts recommend keeping three to six months' worth of cash to cover living expenses when people lose their jobs. For businesses, maintaining liquidity through a recession can making the difference between shutting the doors or surviving the downturn.
Don't use funds that you need soon.
Make sure you have the time horizon to weather any losses, or hold your cash in stable assets like an interest-bearing savings or checking account, money market fund, or CD—especially if you're expecting a large expense or purchase in the short-term.
“The demand for travel and hospitality services typically declines as consumers cut back on discretionary spending,” Sarib Rehman, CEO of Flipcost, said. “To attract customers, airlines, hotels and travel agencies often lower their prices and offer more promotions.”
U.S. government securities—such as Treasury notes, bills, and bonds—have historically been considered extremely safe because the U.S. government guarantees timely payment of interest and principal, backed by its full faith and credit.
As long as your deposit accounts are at banks or credit unions that are federally insured and your balances are within the insurance limits, your money is safe. Banks are a reliable place to keep your money protected from theft, loss and natural disasters. Cash is usually safer in a bank than it is outside of a bank.
The government generally can't take money out of your bank account unless you have an unpaid tax bill (and before they go to that extreme, they will send you several notifications and offer you multiple opportunities to pay your outstanding taxes).
About Recessions and Ensuring Deposit Insurance
If the United States were to enter a recession, the funds you have saved at a bank aren't at risk of becoming lost or inaccessible the same way they were during the Great Depression.
One major drawback of a CD is that account holders can't easily access their money if an unanticipated need arises. They typically have to pay a penalty for early withdrawals, which can eat up interest and can even result in the loss of principal.
Credit unions and banks are both insured, with most banks being insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per customer.
Precious metals, like gold and silver, tend to perform well during market slowdowns. But since the demand for these kinds of commodities often increases during recessions, their prices usually go up, too. You can invest in precious metals in a few different ways.
Stocks and bonds have relatively low transaction costs, allow you to diversify more easily and leave your cash more liquid than real estate (although the stock market is typically more volatile than the housing market). Meanwhile, real estate is a hedge against inflation and has tax advantages.
For workers and households, the picture was less rosy. Unemployment was at 5% at the end of 2007, reached a high of 10% in October 2009, and did not recover to 5% until 2015, nearly eight years after the beginning of the recession. Real median household income did not recover to pre-recession levels until 2016.
“To minimise risk, limit savings accounts balance to Rs 5 lakh or less per account holder per bank, aligned with the Deposit Insurance and Credit Guarantee Corporation (DICGC) insurance limit,” says Govila.
While reaching the $100,000 mark is an admirable achievement, it shouldn't be seen as an end game. Even a six-figure bank account likely won't go far enough in retirement, which could last as long as 30 years.
Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.