Where Should I Put My Savings in a Recession?
Quick Answer
During a recession, consider putting your money in a high-yield savings account, CD, money market account or bonds.
A recession is usually defined as at least two consecutive quarters of negative gross domestic product (GDP) growth. During a recession, unemployment tends to increase, and the stock market typically declines.
There isn't one right place to put your savings during a recession. As is the case during brighter economic times, where you should put your money depends on your goals for the funds—and on your appetite for risk. If your main goal is to keep your money safe during a downturn while still earning some interest, you should consider savings options that shelter you from market volatility. Read on for several low-risk investments to consider.
| High-Yield Savings Account | CD | Money Market Account | Bonds |
|---|---|---|---|
| Good for easy access to funds | Good if you don't need access to funds right away | Good for liquidity | Good for longer-term savings |
| Above-average savings rates | Guaranteed returns | Competitive rates | Predictable, relatively high rates |
1. High-Yield Savings Account
High-yield savings accounts offer higher annual percentage yields (APYs) than traditional savings accounts, making them a more attractive option. Interest rates in general tend to drop during a recession, but a high-yield savings account is still worth considering.
Learn more: What Happens to Interest Rates During a Recession?
Pros of High-Yield Savings Accounts
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Above-average yields: A high-yield savings account can help you save more money safely and increase your net worth. Some currently have interest rates that exceed 4% (though this could significantly decrease in the event of recession). That's much higher than the average rate for a traditional savings account, which is typically under half a percent.
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Easy access to funds: Liquidity is another benefit of a high-yield savings account. It's an ideal spot for your emergency fund, and it can also be a great place to save money for short-term financial goals. Certificates of deposit (CDs) and tax-deferred retirement accounts, on the other hand, impose penalties for early withdrawals.
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It's safe from stock market ups and downs: If a recession causes short-term market volatility, you won't lose money on your high-yield savings deposits, unlike investing in the stock market. The APY will be working for you regardless (though it could be lower than the rate you had when you opened the account). Your funds are also insured by the Federal Deposit Insurance Corp. (FDIC) or National Credit Union Administration (NCUA) for up to $250,000 per depositor, per institution.
Cons of High-Yield Savings Accounts
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Convenient withdrawals may be limited: Some financial institutions limit how many free electronic transfers and withdrawals you can make each month, and banks often restrict withdrawals to no more than six per month. That said, some banks place no cap on withdrawals, so look for this feature when picking a bank if you want to access your funds without worrying about limits.
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Potential fees: Some high-yield savings accounts charge fees. That might include overdraft fees or penalties if your balance drops below a certain amount.
Learn more: Best High-Yield Savings Accounts
2. Certificate of Deposit (CD)
With a certificate of deposit, you'll earn a higher APY for leaving your money in the account for a specified time period. You'll likely be penalized for making withdrawals before the term ends, but CDs' higher-than-average APYs can be attractive during a recession.
Learn more: Best CD Rates
Pros of CDs
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High APYs: CDs can have APYs higher than many high-yield savings accounts.
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The ability to leverage multiple terms: Using a CD ladder or CD barbell allows you to take advantage of different term lengths and interest rates. It involves staggering your money across different CDs that have varying maturity timelines. You'll gain liquidity as each term expires.
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Guaranteed returns: If you keep your money in a CD for the full term, your interest rate is guaranteed. Like savings accounts, CDs are also insured by the FDIC or NCUA for up to $250,000 per account holder and institution.
Cons of CDs
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Liquidity limitations: Even with high APYs, early withdrawal penalties can make CDs less appealing than other deposit accounts. They aren't the best for money you expect to need in the near future. If liquidity is a concern, consider getting a no-penalty CD that allows you to withdraw funds without penalty.
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Minimum deposit requirements: Every CD is different, but some require a minimum opening deposit. This is typically $500 or more. If you have less than that, you may be better off with a high-yield savings account.
3. Money Market Account
A money market account earns interest like a savings account, but most come with a debit card or checkbook as well. It's a low-risk investment that can make sense during the turbulence of a recession.
Pros
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Accessibility: Money market accounts stand out for their flexibility. It's relatively easy to access your account through electronic withdrawals and transactions, and you can also write checks and potentially have a linked debit card.
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Competitive interest rates: Money market accounts may have higher rates than checking and traditional savings accounts, and they could be as high as some CDs and high-yield savings accounts.
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Peace of mind: Money market accounts have the same FDIC or NCUA insurance coverage as CDs and savings accounts. That can keep some or all of your funds safe during a recession.
Cons of Money Market Accounts
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Limits on "convenient" withdrawals: You may be limited to six per month. What counts as a convenient withdrawal can vary from bank to bank. For example, some may include ATM withdrawals in this total while others don't.
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Potential fees: Some money market accounts impose a fee if you don't meet minimum balance requirements. There might also be a monthly maintenance fee.
Learn more: Best Money Market Accounts
4. Bonds
When you purchase a bond, you're lending money to the company or government entity that issued it. You'll get your money back, plus interest, when the term ends. Bonds can be a viable investment if you're looking for a reliable return during a recession.
Learn more: What to Know Before You Invest in Bonds
Pros of Bonds
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Low risk: As far as investment risk goes, bonds are on the lower end of the spectrum—especially those that are backed by the federal government.
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Diversification: Having bonds in your investment portfolio can help you stay diversified. If a recession negatively impacts the stock market, bonds can provide steady returns that offset some of those losses.
Cons of Bonds
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Lack of liquidity:If you need cash and sell a bond before it matures, you could end up losing money to fees. Changing interest rates can also influence how much bonds are worth.
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Modest returns: Bonds can help grow a portion of your savings, but returns are usually less robust when compared to stocks.
The Bottom Line
If you're wondering where to put your money in a recession, consider a high-yield savings account, money market account, CD or bonds. They can provide safe places to store some of your savings.
It's worth noting that a recession doesn't mean you should pull your money out of the stock market. On the contrary, it's wise to stay invested and continue contributing to your retirement accounts. But having your money spread out across a variety of savings and investment accounts can help cushion the blow of any losses to your invested funds during a recession.
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About the author
Marianne Hayes
Marianne Hayes is a longtime freelance writer who's been covering personal finance for nearly a decade. She specializes in everything from debt management and budgeting to investing and saving. Marianne has written for CNBC, Redbook, Cosmopolitan, Good Housekeeping and more.
Read more from Marianne