Is it smart to have cash in a recession?
High-yield savings account
Cash. Cash is an important asset when it comes to a recession. After all, if you do end up in a situation where you need to pull from your assets, it helps to have a dedicated emergency fund to fall back on, especially if you experience a layoff.
Investors seeking stability in a recession often turn to investment-grade bonds. These are debt securities issued by financially strong corporations or government entities. They offer regular interest payments and a smaller risk of default, relative to bonds with lower ratings.
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.
- Seek Out Core Sector Stocks. During a recession, you might be inclined to give up on stocks, but experts say it's best not to flee equities completely. ...
- Focus on Reliable Dividend Stocks. ...
- Consider Buying Real Estate. ...
- Purchase Precious Metal Investments. ...
- “Invest” in Yourself.
Generally, money kept in a bank account is safe—even during a recession. However, depending on factors such as your balance amount and the type of account, your money might not be completely protected. For instance, Silicon Valley Bank likely had billions of dollars in uninsured deposits at the time of its collapse.
That should include a little cash stashed in the house, enough to cover the monthly bills in a checking account, and enough to cover an emergency in a savings account. For the emergency stash, most financial experts set an ambitious goal at the equivalent of six months of income.
Avoid becoming a co-signer on a loan, taking out an adjustable-rate mortgage (ARM), or taking on new debt. Don't quit your job if you aren't prepared for a long search for a new one. If you own your own business, consider postponing spending on capital improvements and taking on new debt until the recovery has begun.
For investors, “cash is king during a recession” sums up the advantages of keeping liquid assets on hand when the economy turns south. From weathering rough markets to going all-in on discounted investments, investors can leverage cash to improve their financial positions.
The short answer is no. Banks cannot take your money without your permission, at least not legally. The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 per account holder, per bank. If the bank fails, you will return your money to the insured limit.
Can you lose money in a savings account during a recession?
It's safe from the stock market: 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.
Where to safely keep cash at home. Just like any other piece of paper, cash can get lost, wet or burned. Consider buying a fireproof and waterproof safe for your home. It's also useful for storing other valuables in your home such as jewelry and important personal documents.
Lower prices — A recession often hits after a long period of sky-high consumer prices. At the onset of a recession, these prices suddenly drop, balancing out previous long inflationary costs. As a result, people on fixed incomes can benefit from new, lower prices, including real estate sales.
How much is too much savings? Keeping too much of your money in savings could mean missing out on the chance to earn higher returns elsewhere. It's also important to keep FDIC limits in mind. Anything over $250,000 in savings may not be protected in the rare event that your bank fails.
Having $20,000 in a savings account is a good starting point if you want to create a sizable emergency fund. When the occasional rainy day comes along, you'll be financially prepared for it. Of course, $20,000 may only go so far if you find yourself in an extreme situation.
“As a general rule of thumb, having access to $1,000 in cash at home would ensure you can at least pay for immediate expenses in the case of a national emergency,” she said.
Having enough cash on hand can limit the need to sell assets when the market is down, a misstep that could drain your retirement balances faster. Of course, the exact amount of cash to keep on hand in retirement depends on monthly expenses and other sources of income.
Many investors turn to stocks in companies that sell consumer staples like health care, food and beverages, and personal hygiene products. These businesses typically remain profitable during recessions and their share prices tend to better resist stock market sell-offs.
Do Car Prices Go Down In A Recession? Car prices typically go down when supply exceeds demand. However, unlike in past recessions, some automakers are making permanent changes to how they do business.
Many millionaires keep a lot of their money in cash or highly liquid cash equivalents. They establish an emergency account before ever starting to invest. Millionaires bank differently than the rest of us. Any bank accounts they have are handled by a private banker who probably also manages their wealth.
Are people pulling cash out of banks?
Here's Who's Pulling Their Money. Total deposits at commercial banks fell by just over $1 trillion from April 2022 to May 2023. People 40 years old and younger are more likely to pull their money, with 38% of them reporting that they moved deposits compared to 23% of those over 40.
If your bank fails, up to $250,000 of deposited money (per person, per account ownership type) is protected by the FDIC. When banks fail, the most common outcome is that another bank takes over the assets and your accounts are simply transferred over. If not, the FDIC will pay you out.
Your money is safe at Capital One
The FDIC insures balances up to $250,000 held in various types of consumer and business deposit accounts.
- Find Ways to Save on the "Big Three" ...
- Review Your Automated Subscriptions. ...
- Crush Your Debt. ...
- Re-Evaluate Your Employment Situation. ...
- Think of Ways to Boost Your Earnings on the Job. ...
- Take on a Side Gig. ...
- Pay Yourself First. ...
- Look for Ways to Earn More on Interest.
In addition, during recessions, people with access to cash are in a better position to take advantage of investment opportunities that can significantly improve their finances long-term.
References
- https://www.livescience.com/35792-global-depression-rates.html
- https://penntoday.upenn.edu/news/does-more-money-correlate-greater-happiness-Penn-Princeton-research
- https://hbr.org/2022/11/how-to-manage-your-money-during-a-recession
- https://www.investopedia.com/articles/personal-finance/040915/how-much-cash-should-i-keep-bank.asp
- https://economics.mit.edu/sites/default/files/2022-09/poverty-depression-anxiety-science.pdf
- https://mailchimp.com/resources/recession-proof-businesses/
- https://pacresmortgage.com/knowledge-center/news-insights/recession-home-value
- https://www.cdc.gov/nchs/products/databriefs/db172.htm
- https://www.nhs.uk/mental-health/advice-for-life-situations-and-events/how-to-cope-with-financial-worries/
- https://www.nasdaq.com/articles/5-key-signs-youre-keeping-too-much-money-in-your-savings-account
- https://money.usnews.com/investing/articles/best-investments-during-a-recession
- https://www.investopedia.com/articles/pf/09/avoid-five-recession-risks.asp
- https://finance.yahoo.com/news/generations-financially-traumatized-gen-x-204842104.html
- https://www.mind.org.uk/information-support/tips-for-everyday-living/money-and-mental-health/the-link-between-money-and-mental-health/
- https://www.investopedia.com/what-happens-if-my-bank-fails-7378029
- https://www.forbes.com/sites/johnjennings/2024/02/12/money-buys-happiness-after-all/
- https://www.quora.com/Why-was-money-worthless-in-the-Great-Depression
- https://smartasset.com/investing/5-things-to-invest-in-when-a-recession-hits
- https://happinesson.com/how-to-be-happy-if-you-are-poor/
- https://www.globalcitizensolutions.com/safest-banks-us/
- https://www.nasdaq.com/articles/6-recession-proof-ways-to-make-passive-income
- https://www.forbes.com/advisor/banking/safest-banks-in-the-us/
- https://www.investopedia.com/articles/investing/022216/3-ways-take-advantage-recession.asp
- https://finance.yahoo.com/news/20-000-good-amount-savings-160036732.html
- https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7891298/
- https://finance.yahoo.com/news/much-cash-keep-home-times-180337690.html
- https://www.mentalhealthandmoneyadvice.org/en/top-tips/what-is-financial-anxiety/
- https://www.fool.com/the-ascent/banks/articles/over-1-trillion-has-left-traditional-banks-heres-whos-pulling-their-money/
- https://www.investopedia.com/terms/l/loss-psychology.asp
- https://www.forbes.com/advisor/banking/how-much-cash-should-you-keep-in-the-bank/
- https://money.usnews.com/investing/term/economic-depression
- https://www.fool.com/the-ascent/banks/where-put-money-recession/
- https://www.capitalone.com/bank/fdic/
- https://www.unfcu.org/financial-wellness/50-30-20-rule/
- https://www.sofi.com/learn/content/how-to-make-talking-about-finances-fun-not-a-fight/
- https://www.usatoday.com/money/blueprint/investing/what-assets-are-recession-proof/
- https://www.nerdwallet.com/article/banking/how-much-money-in-checking-and-savings
- https://www.synchronybank.com/blog/recession-proof-savings/
- https://www.americanbullion.com/can-banks-seize-your-money/
- https://privatebank.jpmorgan.com/nam/en/insights/wealth-planning/how-much-cash-is-too-much-cash
- https://www.helpguide.org/articles/stress/coping-with-financial-stress.htm
- https://www.usa.gov/financial-hardship
- https://www.nasdaq.com/articles/heres-how-much-cash-you-need-stashed-if-a-recession-happens
- https://insights.som.yale.edu/insights/as-incomes-rise-variability-in-happiness-shrinks
- https://www.psychologytoday.com/us/blog/psychology-money-and-happiness/202203/how-happy-are-millionaires
- https://www.experian.com/blogs/ask-experian/where-to-put-savings-in-recession/
- https://www.acorns.com/learn/investing/industries-most-affected-by-a-recession/
- https://www.fool.com/the-ascent/banks/articles/heres-what-happens-to-your-savings-in-a-recession/
- https://www.forbes.com/sites/forbesfinancecouncil/2023/03/14/the-connection-between-financial-well-being-and-mental-health/
- https://www.johnhancock.com/ideas-insights/5-simple-ways-to-reset-budget.html
- https://finance.yahoo.com/news/where-millionaires-keep-money-070638027.html
- https://www.nhs.uk/every-mind-matters/lifes-challenges/money-worries-mental-health/
- https://www.investopedia.com/financial-edge/0811/9-businesses-that-thrive-in-recession.aspx
- https://www.cnbc.com/select/how-to-deal-with-financial-anxiety/
- https://www.investopedia.com/articles/financial-theory/12/psychological-coping-strategies.asp
- https://www.smh.com.au/money/planning-and-budgeting/i-have-a-good-job-and-savings-so-why-do-i-still-worry-about-money-20230801-p5dsvv.html
- https://www.psychologytoday.com/us/blog/emotional-fitness/202303/the-struggles-of-growing-up-rich
- https://www.bankrate.com/personal-finance/american-opinions-on-personal-finances-and-us-economy-since-2020-election/
- https://www.thesaurus.com/browse/moneyless
- https://www.getsmarteraboutmoney.ca/learning-path/psychology-of-investing/how-a-fear-of-losing-can-affect-your-financial-decisions/
- https://www.securian.com/insights-tools/articles/relationship-between-financial-mental-health.html
- https://www.history.com/news/great-depression-people-who-made-money
- https://www.cnbc.com/2022/07/06/how-much-cash-you-need-for-a-recession-according-to-advisors.html
- https://www.healthline.com/health/is-depression-contagious
- https://www.sofi.com/learn/content/can-a-certificate-of-deposit-cd-lose-value/
- https://www.kanehealth.com/Documents/Emergency%20Response/stockpilingtoolkit.pdf
- https://www.forbes.com/advisor/banking/is-my-money-safe-in-the-bank/
- https://www.bankrate.com/banking/how-much-cash-should-you-keep-at-home/
- https://www.forbes.com/sites/qai/2022/08/24/is-it-true-that-cash-is-king-during-a-recession/
- https://www.forbes.com/sites/alicegwalton/2015/01/26/why-the-super-successful-get-depressed/
- https://smartasset.com/personal-finance/is-my-money-safe-in-the-bank-during-a-depression
- https://study.com/learn/lesson/what-makes-people-happy-research-causes-of-happiness.html
- https://medium.com/atharavraj/the-loneliness-of-wealth-exploring-why-rich-people-dont-have-friends-f26204cf870e
- https://www.cnbc.com/2023/09/22/money-expert-dont-load-up-on-cash.html
- https://www.businessinsider.com/personal-finance/recession-save-more-cash-strategies-2022-12
- https://www.provise.com/the-pros-and-cons-of-a-recession-from-a-financial-planning-perspective/
- https://www.experian.com/blogs/ask-experian/dos-and-donts-of-saving-during-recession/
- https://psychcentral.com/depression/depression-shopping
- https://psychcentral.com/depression/are-wealthy-people-more-depressed-than-others
- https://www.fool.com/the-ascent/personal-finance/articles/34-of-americans-are-struggling-financially-heres-what-to-do-if-youre-one-of-them/
- https://thebounceblog.com/articles/bouncing-back-from-financial-grief-and-loss/
- https://finance.yahoo.com/news/dark-side-wealth-psychological-challenges-154449405.html
- https://www.forbes.com/advisor/banking/living-paycheck-to-paycheck-statistics-2024/
- https://www.moneymanagement.org/blog/signs-a-loved-one-may-be-struggling-with-debt
- https://smartasset.com/financial-advisor/how-long-do-recessions-last
- https://www.travelers.com/resources/business-industries/small-business/recession-proof-products-services
- https://www.carsdirect.com/deals-articles/do-car-prices-drop-in-a-recession
- https://www.investopedia.com/terms/r/recession-proof.asp
- https://fortune.com/recommends/banking/how-much-money-should-you-keep-in-savings/
- https://time.com/6966650/money-stress-illness/
- https://www.fool.com/terms/c/cash-is-king/
- https://www.shopify.com/blog/how-to-make-money-in-a-recession
- https://www.bankrate.com/investing/investing-during-a-recession/
- https://www.forbes.com/advisor/investing/best-investments-stock-market-crash/
- https://www.oreilly.com/library/view/your-money-the/9780596809430/ch01.html
- https://www.who.int/news-room/fact-sheets/detail/depression
- https://www.ramseysolutions.com/budgeting/what-to-do-with-money-during-recession
- https://www.businessinsider.com/personal-finance/is-money-safe-in-bank-during-recession
- https://www.investopedia.com/terms/s/suddenwealthsyndrome.asp
- https://www.nerdwallet.com/ca/personal-finance/how-to-cope-financial-stress-trauma