What to Do With Your Savings During COVID-19

At a time like this, it's especially important to put your money where it needs to be.

The COVID-19 pandemic is more than just a public health crisis; it's a financial one, too. And that means you need to be extra vigilant about what you do with your money. The specific moves you make with your cash should be based on your personal needs and circumstances, but here's a general guide to managing your savings during these rocky times.

1. Have six months' worth of living expenses in the bank

Generally speaking, you're more likely to lose your job or have your hours cut during a recession than when the economy is healthier. That's why right now, your first savings priority should be to have six months' worth of essential living expenses in a bank account earmarked for emergencies.

Remember, if you lose your job through no fault of your own, you'll generally be eligible for unemployment benefits, but they may not kick in right away. In fact, throughout the pandemic, there have been stories of people waiting weeks or even months for their benefits to arrive. That's not meant to scare you, but rather to empower you to protect yourself in case you are laid off.

Another thing you should know is that unemployment may not come close to replacing your missing paycheck. That's another reason to have a solid emergency fund, as it will tide you over if you find yourself out of work for some time. But remember, you only need to set aside six months of essential expenses for emergencies. Essential expenses are non-negotiable items like rent, food, medication, and electricity. If you normally spend $100 a month on takeout meals and another $80 on cable, those are bills you can technically cut for a while if your paycheck disappears and you can't afford them.

2. Consider putting some money into a CD -- if the rates make sense

With a certificate of deposit (CD), you agree to lock your money away in the bank for a preset period of time. In exchange, the interest rate you'll receive is usually higher than you'd get with a regular savings account. If you have a good six months' worth of living expenses available in the bank but are still saving extra money on top of that, a CD could make sense -- but only if the rates are attractive.

Right now, interest rates are low across the board, but some banks' CD rates aren't much higher than those of savings accounts. And even if you do score a slightly higher rate, you're effectively giving up access to that money or risking a penalty for cashing out a CD early. Penalties can vary by bank, but you'll lose a few months' worth of interest for cashing out a CD before it comes due. As such, you'll need to run the numbers to see if a CD makes sense right now.

Imagine your bank pays 0.80% interest in a regular savings account, and 1% interest for a one-year CD. Let's also imagine you have an extra $5,000 to put into the bank outside your emergency savings. At 0.80% for the year, you're looking at $40 in interest income. The CD will earn $50 with its rate of 1%. At that point, you'll need to ask yourself: Is an extra $10 really worth having to lock your money up for a solid year or risk a penalty?

Another thing to keep in mind is that right now, the best CD rates you'll find are for longer-term CDs -- namely, 5-year CDs or even 10-year CDs. But given the way rates have dropped recently, locking yourself into a 5-year CD isn't really advisable right now as chances are, rates will climb in the next half-decade. If you're going to sign up for a CD right now, a shorter-term (two years or less) is a better bet.

3. Invest money you don't expect to need in the near term

These days, it's hard to get more than 1% interest out of a savings account or CD. But if you invest your money, you might earn a lot more, especially since the stock market is performing well in spite of the ongoing recession.

If your emergency fund is complete and you're not thrilled with CD rates, it pays to consider opening a brokerage account and putting your extra money into it. If you're going to do that, though, expect to leave that money alone for a good seven years. The stock market can be very volatile, and so it's important to be prepared to leave your money in it for a long time so you can ride out downturns.

Many people are struggling to put food on the table at the moment, so if you're in a strong enough position to have savings, you're ahead of the game. Just be sure to manage that money wisely during these trying, unprecedented times so it serves you well in the near term as well as in the long run.