Is My Money Safe in the Bank in a Recession?


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Hopefully, this will put your mind at ease.

Key points

  • Banks take several steps to secure their customers’ money.
  • But a bank account isn’t always the best place to keep your cash.
  • If you have money to save for the long term, you may be better off investing it.

For many of us, recessions are synonymous with hard times and losing money. That can be super stressful, especially for those who are already struggling to get by. Recessions can make people wary of investing their money for fear of loss. But is keeping your money in the bank really that much better?

Fortunately, yes, assuming you’ve chosen a reputable institution. Below, we’ll take a look at how banks protect your money and when you may not want to keep your savings here.

How banks keep your money safe

Money you put in a bank account is always yours, and often you can withdraw those funds whenever you want. Checking accounts are the best place for everyday spending. But savings accounts are a better home for your emergency fund and money you plan to spend in the next few years.

There’s no real risk of losing money with a bank account unless you rack up a bunch of overdraft fees or an identity thief gains access to your account. And even in the latter case, you may be able to get your funds back if you notify the bank immediately.

In theory, you could also lose money if your bank were to go out of business, but even in this scenario, most people don’t lose a dime. That’s because most bank accounts are covered by Federal Deposit Insurance Company (FDIC) insurance. This pays you up to $250,000 per person per account type per bank in the event of a bank failure. So as long as you don’t exceed these limits, you won’t lose any money even if your bank completely mismanages all its funds.

There’s a much greater chance that you make money by keeping your extra cash in a bank account, especially if you opt for a savings account. These accounts enable you to earn interest on your money in the form of an annual percentage yield (APY). Many of the top savings accounts today have APYs in excess of 2.50%. You don’t have to do anything to claim this. Just leave your money alone and you’ll receive regular interest payments into your account.

When you shouldn’t keep money in a bank account

Bank accounts are great for keeping cash to pay your monthly bills or for short- to medium-term savings goals. But most people are better off investing longer-term savings, even if a recession is on the horizon.

Investing offers much greater earning potential, and while it does carry a risk of loss, those who buy and hold their investments for at least five to seven years generally earn a decent profit. If you have a hard time looking past short-term losses, try to avoid checking your portfolio more than a few times a year. This can help you avoid emotional decision-making.

Ultimately, the best home for your money depends on how you plan to use it. But regardless of where you keep your cash, you need to take steps on your end to ensure that money doesn’t wind up in someone else’s hands. Never access your financial accounts on a public wifi network, and avoid writing your passwords down or sharing them with others. If you do this, you shouldn’t have to worry about losing any of your savings.

These savings accounts are FDIC insured and could earn you up to 18x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you more than 18x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2022.

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