Should I keep cash during a recession? (2024)

Should I keep cash during a recession?

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.

Cash. Cash is an important asset during a recession. Having an emergency fund to tap if you need extra cash is helpful. This way, you can let your investments ride out market lows and capitalize on long-term growth.

Probably not. You can withdraw savings to pay bills or reinvest as normal, but banks are somewhat recession-proof.

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.

1. Saving Accounts. There's a good chance you already have a savings account. Like checking accounts, they're federally insured and are generally the simplest and safest place to keep cash in good times and bad.

When the economy is in a recession, financial risks increase, including the risk of default, business failure, job losses, and bankruptcy. Avoid becoming a co-signer on a loan, taking out an adjustable-rate mortgage (ARM), or taking on new debt.

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 all your money out of the stock market.

First and foremost, it is essential to choose a bank that is insured by the Federal Deposit Insurance Corporation (FDIC). The FDIC insures deposits up to $250,000 per depositor, per insured bank. This means that if your bank fails, you can still get your money back up to the insured amount.

Recessions typically occur every 6.5 years, a sobering reminder of why keeping cash on hand is a crucial part of financial planning. But how much is the right amount? Experts recommend having three to six months of living expenses in a savings account, regardless of the economic climate.

What gets cheaper during a recession?

Because a decline in disposable income affects prices, the prices of essentials, such as food and utilities, often stay the same. In contrast, things considered to be wants instead of needs, such as travel and entertainment, may be more likely to get cheaper.

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.

A recession impacts all aspects of the economy, including savings and investments. It can also lead to higher rates of unemployment, which can also impact your day-to-day finances. Having a financial plan in place to deal with economic downturn can help you through times of uncertainty.

They all said the same thing: You need three to six months' worth of living expenses in an easily accessible savings account. The exact amount of cash needed depends on one's income tier and cost of living.

While volatile financial times (inflation, recessions, and fluctuations in supply and demand) may cause some to feel as though the best place to store their money is under the mattress: it is not a recommended practice now, or at any other time.

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.

Cash Is King During a Recession

However, selling investments to get cash in anticipation of a recession is risky. You might sell prematurely and get trapped in cash as markets rise.

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.

Toothpaste, deodorant, shampoo, toilet paper, and other grooming and personal care items are always in demand. Offering these types of items can position your business as a vital resource for consumers during tough times. People want to look good, even when times are tough.

Where does the money go during a recession?

During recessions, one of the primary culprits responsible for money vanishing into thin air is the collapse of banks. As financial institutions crumble under the weight of bad loans and dwindling assets, they often go belly up, taking the money entrusted to them along for the ride.

You should only take your money out of the bank if you need the cash. In the bank, cash is less vulnerable to theft, loss and disaster. And depending on the bank account, you could be earning interest on your cash that you won't be earning if it stays under your mattress.

U.S. government securities—such as Treasury notes, bills, and bonds—have historically been considered extremely safe because the U.S. government has never defaulted on its debt. Treasury bonds also pay the highest interest rates. They are offered to investors for a term of 20 or 30 years to maturity.

For the emergency stash, most financial experts set an ambitious goal of the equivalent of six months of income. A regular savings account is "liquid." That is, your money is safe and you can access it at any time without a penalty and with no risk of a loss of your principal.