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Where to Invest Your Money During a Recession

You may be hearing chatter about a possible recession, typically defined as at least two consecutive quarters of negative gross domestic product (GDP) growth. During such times, unemployment tends to rise, and the stock market often declines. While the future remains uncertain, you might be wondering where to put your money in a recession. Here are several low-risk investments to consider.

1. High-Yield Savings Account

High-yield savings accounts offer higher annual percentage yields (APYs) than traditional savings accounts, making them a more attractive option. Although interest rates generally drop during a recession, a high-yield savings account is still worth considering.

Pros of High-Yield Savings Accounts

• Above-average yields: These accounts can help increase your net worth, with some offering interest rates exceeding 5% (though this could decrease during a recession).
• Easy access to funds: Liquidity is another benefit, making it an ideal spot for your emergency fund or short-term financial goals.
• Safety from the stock market: Your deposits are insured by the Federal Deposit Insurance Corp. (FDIC) or National Credit Union Administration (NCUA) for up to $250,000 per depositor, per institution.

Cons of High-Yield Savings Accounts

• Limited withdrawals: Some institutions limit the number of free electronic transfers and withdrawals you can make each month.
• Potential fees: Some accounts charge fees, such as overdraft fees or penalties if your balance drops below a certain amount.

2. Certificates of Deposit (CDs)

With a certificate of deposit, you’ll earn interest for leaving your money in the account. While early withdrawals may incur penalties, their higher-than-average APYs can be attractive during a recession.

Pros of CDs

• High APYs: CDs often offer higher APYs than many high-yield savings accounts.
• Multiple terms: Using a CD ladder allows you to take advantage of different term lengths and interest rates.
• Guaranteed returns: Your interest rate is guaranteed if you keep your money in a CD for the full term, and they are insured by the FDIC or NCUA.

Cons of CDs

• Liquidity limitations: Early withdrawal penalties can make CDs less appealing for money you might need soon.
• Minimum deposit requirements: Some CDs require a minimum opening deposit, typically $500 or more.

3. Money Market Accounts

A money market account earns interest like a savings account but often comes with a debit card or checkbook. It’s a low-risk investment that can make sense during a recession.

Pros of Money Market Accounts

• Accessibility: These accounts offer liquidity, allowing for electronic withdrawals and transactions, and often come with a checkbook or debit card.
• Competitive interest rates: Money market accounts may have higher rates than checking and traditional savings accounts.
• Peace of mind: They are insured by the FDIC or NCUA, keeping your funds safe during a recession.

Cons of Money Market Accounts

• Limits on withdrawals: Withdrawals may be limited to six per month, depending on the bank’s rules.
• Potential fees: Some accounts impose fees if you don’t meet the minimum balance requirements.

4. Bonds

When you purchase a bond, you’re loaning money to the issuing company or government entity. You’ll get your money back, plus interest, when the term ends. Bonds can be a viable investment if you’re looking for a reliable return during a recession.

Pros of Bonds

• Low risk: Bonds, especially those backed by the federal government, are generally low-risk investments.
• Diversification: Including bonds in your portfolio can help you stay diversified and provide steady returns during a recession.

Cons of Bonds

• Lack of liquidity: Selling a bond before it matures could result in fees and potential losses.
• Modest returns: While bonds can grow a portion of your savings, returns are usually less robust compared to stocks.

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. These options 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. On the contrary, it’s wise to stay invested and continue contributing to your retirement accounts. However, having your money spread across various savings and investment accounts can help cushion the blow of any losses to your invested funds during a recession.

For any mortgage-related needs, feel free to call O1ne Mortgage at 213-732-3074. We’re here to help you navigate your financial journey with confidence.

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