How to know if you should keep your money in a bank if you're worried about a recession (2024)

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  • 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 insurance.
  • Up to $250,000 is secure in individual bank accounts and $500,000 is safe in joint bank accounts.

Recessions are a normal part of the business cycle. Nevertheless, they're still scary to think about. So if you start to hear economists talking about a possible incoming recession and you see headlines like Silicon Valley Bank being shut down by regulators, you might be wondering about the safety of your money.

If you're concerned about whether money is safe in a bank during a recession, there's good news — your money will be likely secure in a bank account. Here's what you need to know about banking during economic downturns.

Banking failures throughout history

We'll briefly go over two of the biggest economic crises in US history, so you can get a better idea of how policies have changed so consumers have more security over their deposits.

Bank failures during the Great Depression (1929 to 1939)

The Federal Deposit Insurance Corporation (FDIC) was established in 1933 in response to the bank failures that happened during the Great Depression.

"The crucial thing to recognize about the Great Depression and what's come after that is the kind of bank failures that we had prior to 1934 are very unlikely to occur again because the US created deposit insurance," adds Jeffrey Miron, a senior lecturer of economics and director of undergraduate studies at Harvard University.

Through the Banking Act of 1933, the FDIC could protect consumer bank accounts through deposit insurance.Miron says people's incentives changed after this new policy was created.

"If you believe the federal government's promise, then you don't have to worry that other people might be trying to get their money out first," says Miron.

Bank failures during the Great Recession (2007 to 2009)

Significantly fewer banks shut down during this period of economic downtown than during the Great Depression. According to the FDIC, approximately 500 bank failures occurred between 2008 and 2015. In comparison, about 4,000 banks failed in 1933 alone.

Since bank accounts were backed by FDIC insurance, the Great Recession didn't impact depositors in the same way the Great Depression did.

"Depositors today never lose a cent even beyond the deposits that are legally insured, and the reason is, when a bank gets into trouble, the FDIC basically looks for acquiring banks, and all the deposits are transferred to the acquiring banks. That happened in the 2008 crisis," says Charles Calomiris, aColumbia Business School professor in finances and economics.

Is money safe in a bank?

Money deposited into bank accounts will be safe as long as your financial institution is federally insured.

The FDIC and National Credit Union Administration (NCUA) oversee banks and credit unions respectively. These federal agencies also provide deposit insurance.

When a financial institution is federally insured, money deposited into a bank account will be secure even if the financial institution shuts down. Your money will not be lost. It is usually transferred to another bank with FDIC insurance, or you'll receive a check.

Savings accounts, checking accounts, money market accounts, and CDs are examples of federally insured bank accounts. Up to $250,000 is secure in individual bank accounts, and $250,000 is protected per owner in joint bank accounts.

Should you take money out of a bank before a recession?

If you're worried about keeping money in your bank account during a recession, you can rest assured that your money will likely be safe at a financial institution, and you won't need to take it out of your bank account.

"It's very unlikely for history to repeat itself," says Maggie Gomez, CFP® professional and owner ofMoney with Maggie. "I would still have trust in the banking system, especially over keeping your money in your house or someplace that is exposed to much more likely risks of loss."

Gomez suggests using two different banks if you're concerned about where to keep your money.

For example, Gomez says you could have your money deposited in an online bank and a brick-and-mortar bank. You'll be able to deposit or withdraw money at brick-and-mortar locations and earn interest on a high-yield bank account at an online bank.

Financial experts generally advise keeping three to six months' worth of expenses in a bank account as an emergency fund. How much you should keep in your account may also depend on whether you're saving up for a personal goal, like a down payment on a mortgage or a new car.

Sophia Acevedo, CEPF

Banking Editor

Sophia Acevedo is a banking editor at Business Insider. She edits and writes bank reviews, banking guides, and banking and savings articles for the Personal Finance Insider team. She is also a Certified Educator in Personal Finance (CEPF).Sophia joined Business Insider in July 2021. Sophia is an alumna of California State University Fullerton, where she studied journalism and minored in political science. She is based in Southern California.You can reach out to her on Twitter at @sophieacvdo or email sacevedo@businessinsider.com.Read more about how Personal Finance Insider chooses, rates, and covers financial products and services >>Below are links to some of her most popular stories:

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How to know if you should keep your money in a bank if you're worried about a recession (2024)

FAQs

Should I keep my money in the bank during a recession? ›

It indicates an expandable section or menu, or sometimes previous / next navigation options. 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.

Where is your money safest during a recession? ›

Where to put money during a recession. Putting money in savings accounts, money market accounts, and CDs keeps your money safe in an FDIC-insured bank account (or NCUA-insured credit union account). Alternatively, invest in the stock market with a broker.

Should I hold cash during a recession? ›

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.

How to protect money in a recession? ›

Knowing how to prepare for a recession means proactively approaching your finances. Start by establishing a budget, removing unnecessary expenses, and building an emergency fund. Consider paying down debt to improve your financial stability and reduce your reliance on credit during tough times.

What not to buy during a recession? ›

Most stocks and high-yield bonds tend to lose value in a recession, while lower-risk assets—such as gold and U.S. Treasuries—tend to appreciate. Within the stock market, shares of large companies with solid cash flows and dividends tend to outperform in downturns.

Should I pull my money out before a recession? ›

Losses aren't real until you sell. Some investors believe that by selling during a downturn, they can wait out difficult market conditions and reinvest when the market looks better. However, timing the market is extremely difficult, and even professionals who attempt to do this fail more often than not.

What is the best thing to do with cash during a recession? ›

Where is your money safest during a recession? Many investors turn to conservative asset classes such as bonds during recessionary periods. Mutual funds may also be a useful area to consider, and so may established, large-cap companies with strong balance sheets and cash flow.

Can the government take money from your bank account in a crisis? ›

The government can seize money from your checking account only in specific circumstances and with due process. The most common reason for the government to seize funds from your account is to collect unpaid taxes, such as federal taxes, state taxes, or child support payments.

What is the best asset to hold during a recession? ›

Still, here are seven types of investments that could position your portfolio for resilience if recession is on your mind:
  • Defensive sector stocks and funds.
  • Dividend-paying large-cap stocks.
  • Government bonds and top-rated corporate bonds.
  • Treasury bonds.
  • Gold.
  • Real estate.
  • Cash and cash equivalents.
Nov 30, 2023

Why is cash king during a recession? ›

The phrase means that having liquid funds available can be vital because of the flexibility it provides during a crisis. While cash investments -- such as a money market fund, savings account, or bank CD -- don't often yield much, having cash on hand can be invaluable in times of financial uncertainty.

How do you not lose money in a recession? ›

Build up your emergency fund, pay off your high interest debt, do what you can to live within your means, diversify your investments, invest for the long term, be honest with yourself about your risk tolerance, and keep an eye on your credit score.

How to protect savings from bank collapse? ›

Ensure Your Bank Is Insured

If a bank or credit union collapses, each depositor is covered for up to $250,000. If your bank or credit union isn't FDIC- or NCUA-insured, however, you won't have that guarantee, so make sure your funds are at an institution covered by deposit insurance.

Can you lose your savings in a recession? ›

Recessions can impact your savings in many different ways. Lower interest rates, stock market volatility, and potential job loss can drain your savings. Diversifying your investments, building an emergency fund, and opening a high-yield savings account can help protect your savings.

Are people pulling money 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.

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