Where to Put Your Money During a Recession

It's normal to worry about where to put your money during a recession. A recession is a period of economic decline, and it can wreak havoc on investments. With so much uncertainty, people may wonder where it is best to keep their money. In the stock market? A savings or money market account? Maybe a certificate of deposit (CD)?

Here's the thing. The best place to put your money during a recession depends on your investment goals. Unsure what you're looking for? Keep reading. We'll compare the pros and cons of different investments so you can decide where to put your money with confidence.

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. Let's go over each of these options.

Stick it in a savings account

Savings accounts are safe places to store money you might need tomorrow. That's important in a recession: You may need support from your savings to pay bills.

Savings accounts have few restrictions on withdrawals. There used to be a limit of six savings account withdrawals per month under a federal law called Regulation D. This restriction is currently suspended, but some banks still impose withdrawal limits -- contact them or check their websites for details.

All savings accounts earn interest. The amount of interest depends on which account you choose -- so make sure to shop around before settling on one. The best savings accounts offer high APYs (how much you'll earn in a year), up to 10x more than the national average.

Note: Online savings accounts usually have much higher APYs than those offered by traditional brick-and-mortar banks. The average savings account APY is less than 0.50%. Compare that to the APY on the following online savings accounts:

Keep in mind that savings accounts APYs can fluctuate. They don't offer fixed interest rates like CDs. And over long periods of time, the stock market tends to offer much higher returns than savings accounts, online and offline.

During a recession, many investors put money in savings accounts to keep money handy and earn interest on savings. Consider investing in a savings account if you're building an emergency fund or prefer stable returns (right now, the top accounts offer rates around 4%-5%).

Pros

• Easy access to funds
• Open at any bank
• High APYs through online banks
• FDIC insured

Cons

• Low APYs at brick-and-mortar banks
• Withdrawing funds usually requires transfers
• APY can drop at any time

Invest in a money market account

Money market accounts combine features of savings and checking accounts. It's easy to access money kept in a money market account, plus they offer interest rates comparable with savings accounts. They may offer debit cards or check-writing capabilities, and like savings accounts, may have withdrawal limits.

The best money market accounts offer a winning combination of high APYs and easy access to your money.

The downside to money market accounts is their minimum balance requirements. You may need a minimum deposit to open the account and/or avoid monthly maintenance fees. That is problematic when you must drain your savings to cover an emergency expense -– you could be charged for doing so.

During a recession, many investors put money in money market accounts to keep money handy and earn higher-than-average bank rates. Consider investing in a money market account if you can afford the down payment and want easy access to most of your savings.

Pros

• Direct access to funds
• High APYs
• Open at any bank
• FDIC insured

Cons

• Potentially high minimum balance requirements
• APY can drop at any time

Here are a few examples of top money market accounts:

Invest in CDs

A certificate of deposit (CD) is a special type of bank account that offers a high APY. In exchange, you must agree not to withdraw your funds for a set period of time. The amount of time during which you don't withdraw your funds is called the CD term. These terms can be a few months or a few years. If you withdraw funds early, you typically pay a penalty.

The best CD rates are sometimes higher than the best savings account APYs. Additionally, most CDs lock in your APY. That's useful when APYs are falling (as they sometimes do during recessions). A CD is a stable option that earns you consistent returns.

When you invest in a CD while rates are high, you'll keep your higher rate regardless of nationally-falling rates. However, if rates start to rise, you could get stuck with lower rates.

During a recession, many investors put money in CDs to lock in rates or earn stable returns. Consider investing in a CD if you are comfortable with the interest rates and have no plans to withdraw the money before the term is up.

Pros

• Lock in your APY while rates are falling
• Earn high APYs on longer CD terms
• Open at any bank
• FDIC insured

Cons

• Limited access to funds
• APY locked in even when rates rise

Shopping for CDs? Browse top CD rates below.

Invest in the stock market

You could make a lot more money by investing in the stock market, but the stock market can be volatile, especially during recessions. New investors should consider what to invest in during a recession.

The advantage of investing in stocks during a recession is that you can often buy at a discount. Stock prices tend to fall before and during a recession, then gradually recover. You can pay a lower price than usual for quality investments and benefit when the stock market rebounds.

You're technically free to cash out your investments whenever. However, it's best to only put money in the stock market if you don't plan to use it anytime soon. You don't want to invest cash you might need at a moment's notice. If you're in a tight spot, you might need to sell at a loss.

During a recession, many investors put money in stocks to earn high long-term returns. Consider investing in stocks if you don't need the money for emergency payments and are tolerant of risk -- in this case, losing money to poorly-performing companies.

Pros

• Large returns possible
• Variety of investment options
• Cash out whenever

Cons

• Risk of loss
• Can be intimidating for beginners

Still have questions?

Here are some other questions we've answered:

• Can the president-elect affect CDs?
• How much should I keep in my checking account?