Your money is safe in a bank, even during an economic decline like a recession. Up to $250,000 per depositor, per account ownership category, is protected by the FDIC or NCUA at a federally insured financial institution.
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).
For the most part, if you keep your money at an institution that's FDIC-insured, your money is safe — at least up to $250,000 in accounts at the failing institution. You're guaranteed that $250,000, and if the bank is acquired, even amounts over the limit may be smoothly transferred to the new bank.
The Bottom Line
Low-risk options, like high-yield savings accounts, money market accounts and CDs, can all keep your money safe while allowing you to earn interest that could come in handy if things get challenging. For added security, consider spreading your funds across several banks.
Your money will be secured in a bank account during a recession, but only if the bank is FDIC-insured. And if you bank with a credit union, your money is secured if the credit union is insured by the National Credit Union Administration (NCUA).
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.
No. Credit unions are insured by the National Credit Union Administration (NCUA). Just like the FDIC insures up to $250,000 for individuals' accounts of a bank, the NCUA insures up to $250,000 for individuals' accounts of a credit union.
A bank levy allows the IRS to withdraw funds directly from your bank account to cover your tax debt. When the IRS issues a levy, your bank holds the funds for 21 days before transferring them to the IRS, giving you a brief window to resolve the issue.
Should I pull my money out of my bank? It doesn't make sense to take all your money out of a bank, said Jay Hatfield, CEO at Infrastructure Capital Advisors and portfolio manager of the InfraCap Equity Income ETF. But make sure your bank is insured by the FDIC, which most large banks are.
Transactions involving cash withdrawals or deposits of $10,000 or more are automatically flagged to FinCEN. Even if you are withdrawing this money for legitimate reasons — say, to buy a car or finance a home project—the bank must follow reporting rules.
A: The FDIC (Federal Deposit Insurance Corporation) is an independent agency of the United States government that protects bank depositors against the loss of their insured deposits in the event that an FDIC-insured bank or savings association fails.
Beyond SVB
On May 1, 2023, the FDIC announced that First Republic had been closed and sold to JPMorgan Chase, becoming the third bank that failed during 2023, following Silicon Valley Bank's collapse and the closure of Signature Bank on March 12, 2023.
While it is legal to keep as much as money as you want at home, the standard limit for cash that is covered under a standard home insurance policy is $200, according to the American Property Casualty Insurance Association.
If you have money in a checking, saving or other depository account, it is protected from financial downturns by the FDIC. Beyond that, investment products are more exposed to risk, but you can still take some steps to protect yourself.
The FDIC insures bank accounts for up to $250,000 per depositor, per ownership category, per bank. If a bank fails, insured deposits will be moved to another FDIC-insured bank or paid out. You'll usually get a Receiver's Certificate for money that isn't covered by FDIC insurance.
Beyond the insurance issue, credit unions are considered safer than banks because they tend to take fewer risks and adhere to conservative investment principles. In part, that's because credit unions are nonprofits whose owners are their members, whereas banks are for-profit entities whose owners are investors.
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.
Customers in bank runs typically withdraw money based on fears that the institution will become insolvent. With more people withdrawing money, banks will use up their cash reserves and can end up in default. Bank runs have occurred throughout history, including during the Great Depression and the 2008 financial crisis.
You shouldn't oversaturate your investment accounts either, as you'll still only get $250,000 in FDIC insurance per type of account. But you can have a retirement account, a single account, a joint account and other types and still get the $250,000 in FDIC insurance per type of account, even within the same bank.
Places to Keep Your Short-Term Cash
CDs, high-yield savings accounts, and money market funds are the best places to keep your cash when it comes to interest rates. And Treasury bills still offer decent yields at the lowest risk. Learn how they compare in terms of yield, liquidity, and guarantees.
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. There are many more laws and pieces of legislation that protect your money than in the 1930s.
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.
However, while the average recession lasts just 11 months, it generally takes the market more than two years to bounce back to its pre-bear peak. So, the first thing you should do to make your portfolio more recession-resistant is shore up your cash reserves.