Is Your Money Safe in a Savings Account During a Recession?
You want to keep your money safe, especially heading toward a possible recession. Keeping some money in a savings account makes sense, but does it stay safe in a recession?
Can You Lose Money in a Savings Account During a Recession?
Assuming that you’ve chosen a reputable bank, the answer is no — you will not lose money that you’ve deposited in a savings account, even during a recession. Reputable banks maintain insurance from the federal government, which protects the money in your account even in times of recession.
While your money might lose value considering the opportunity cost that comes with keeping your money in a low-interest savings account versus a conservative mutual fund or ETF focused on beating inflation, you won’t see your bank implement new fees, charges or deductions just because the value of the dollar drops.
How Do Banks Keep Money Safe During a Recession?
Banks are able to keep your money safe during times of recession by providing FDIC insurance on all savings accounts up to $250,000 per depositor. FDIC insurance is issued by the Federal Deposit Insurance Corporation, which backs its coverage with the full faith and credit of the U.S. Treasury.
FDIC insurance is important, because it protects your money in the event that your bank goes under or cannot provide all of its customers with immediate access to the funds that they hold in their accounts. The government offers FDIC insurance on checking and savings accounts at reputable banks and credit unions because it wants to encourage Americans to keep their money in secure accounts, where there is less risk of loss when compared to holding cash.
While the federal government does not have the power to guarantee that a bank, credit union or other lender will never go bankrupt, it can guarantee a “bailout” for you as the account holder.
For example, imagine that you have a savings account with $10,000 set aside for emergencies. If the bank that you have the account with goes bankrupt, it might not have the assets on hand to pay back your money. In this event, the bank’s FDIC insurance will reimburse you for the balance you had in your account. This is true both in times of recession and during periods of economic expansion.
Do I Have FDIC Insurance on My Money?
Note that FDIC insurance will not cover every type of banking or investing account. FDIC deposit insurance covers:
- Checking accounts
- Negotiable order of withdrawal (NOW) accounts
- Savings accounts
- Money market deposit accounts
- Certificates of deposit (CDs)
- Cashier’s checks
- Money orders
- Other official items issued by an insured bank.
FDIC deposit insurance does not cover:
- Stock investments
- Bond investments
- Mutual funds
- Life insurance policies
- Municipal securities
- Safe deposit boxes or their contents
- U.S. Treasury bills, bonds or notes
- Cryptocurrencies, tokens and other digital currency assets
FDIC coverage protects your funds up to $250,000 per insured bank. This means that if you have more than $250,000 in assets in a single covered account, you will benefit from only $250,000 worth of protection. If you have more than $250,000 in assets to protect, you can benefit by placing no more than $250,000 in a single FDIC-insured account, spreading the funds between multiple institutions.
Savings account holders who feel like a recession might be on the horizon can take steps to protect their funds if the value of the dollar takes a turn. By holding money in a savings or checking account with a reputable, FDIC-insured bank or credit union, you can take advantage of protections from the federal government.
You can also take steps to learn more about alternative investments, which are sometimes used to hedge against recessions and inflation. Note that if you buy stocks, bonds or other securities, you are not entitled to a bailout from the federal government to restore your losses. Never invest more than you can afford to lose.
- Do you lose money in a savings account?
- No, as long as you choose a reputable institution to hold your money in and limit the amount of money in the account based on the FDIC coverage limits. However, your money may lose value due to inflation – you'll have the same amount of money, but each dollar buys less as inflation rises.
- Where is your money safest during a recession?
- Your money is safest in an FDIC-insured bank account, ideally one that earns a high interest rate. If you're looking to invest, though, look at consumer staples rather than luxuries.
- What should I do with my savings during a recession?
- Consider investments that are relatively safe, like government bonds, certificates of deposit and blue chip stocks.
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- Federal Deposit Insurance Corporation. 2022. "Deposit Insurance."
- Federal Deposit Insurance Corporation. 2022. "The Importance of Deposit Insurance and Understanding Your Coverage."
- Annuity.org. 2023. "How Do Stocks Work?"