Don't Worry 'Bout Your Bank, Mate! Here's the Lowdown on Recession Probabilities and Protecting Your Pocket
Banks' security in economic recessions: An analysis
While the markets might be giving you the wild rollercoaster ride of your life, put your feet up and relax. Here's the deal with our current economy, and what you can do to safeguard your hard-earned cash.
Counting the Cost: Recession Chances and Inflation Slumps
Things are looking pretty swell on paper, with the recent inflation dip to a four-year low and a job market that's smashing expectations. However, fears are beginning to mount amongst consumers and investors that the Trump administration's fresh tariffs could crank up inflation, or even trigger a recession. In fact, consumer optimism has hit an all-time low since 2022, as per the University of Michigan's consumer sentiment poll.
To add fuel to the fire, economists are predicting a more-than-one-in-three chance of a U.S. recession within the next 12 months! Yep, it's recession time alarm bells a'ringing, and people might be left wondering how best to shield their finances from a potential economic slump.
Recession, Shmeession: Fact or Fiction?
So, are we staring down the barrel of a recession? The National Bureau of Economic Research defines a recession as a significant downturn in economic activity that lasts for more than a few months. As of now, we're not living in a recession. The latest inflation rate has dropped, employment remains relatively stable, and the gross domestic product (GDP) registered growth during the last quarter of 2024. That being said, the chances of a recession by March 2026 have inched up to 36%, according to our website's latest economic indicator poll. Most economists agree that trade policies and policy uncertainties could very well drive a recession.
"Job losses, slumping consumer spending, contracting business investments, and below-par or negative GDP growth are all indicators of a recession," says Stephen Kates, CFP®, our resident financial analyst.
Kates points out that, with more jobs available than job-hunters in many states, it'd be tough to foster a recessionary environment. But, if consumer spending tightens up and businesses dial back their plans for growth or investment, available jobs might start to disappear. If companies reduce hiring due to thinner profit margins from increased import costs, layoffs could become commonplace. These factors can create a self-perpetuating loop that leads to a recession.
Should I Stash My Cash Under the Mattress?
If you've been contemplating stashing your savings under the mattress, maybe think again. Bank failures are indeed a common occurrence during times of economic downturn — but don't sweat it! Your money will remain snug and secure at a bank insured by the Federal Deposit Insurance Corp. (FDIC). In fact, since the FDIC's inception in 1933, not a single insured depositor has ever lost a cent during a bank failure. The same goes for credit unions under the National Credit Union Administration (NCUA)'s wing.
The FDIC and NCUA will keep your dough safe with insurance coverage up to $250,000 per depositor, per insured bank, per ownership category. Accounts such as single or joint accounts fall under this category, so if you've got a joint savings account holding $500,000, it'll be fully insured since each account holder is covered for up to $250,000.
"FDIC and NCUA provide peace of mind knowing that your money is secure and always accessible when needed," says Kates. "Just make sure to stick within the insurance limits."
You can easily determine if your bank is FDIC insured by searching for it using the agency's BankFind Suite tool, which shows branch locations, the bank's official website, and its current status. Federally insured credit unions can be located through the NCUA's Credit Union Locator tool. Banks and credit unions with branches will also display signs indicating their federal insurance status.
Which Investments Ride High and Which Sink Low?
Not all investments sport the same recession-resistant hats. While deposits in checking, savings, money market, and certificate of deposit accounts are insured under the FDIC umbrella, other investments like stocks, bonds, mutual funds, crypto assets, annuities, safe deposit boxes, and non-bank payment providers (like PayPal) are not.
How Much Cash Should I Stash at Home?
Some folks might find it important to keep a chunk of cash at home. But, tucking your dough in a high-yield savings account provides the perks of compound interest and reduces the risk of the green stuff getting whisked away or ruined due to an unexpected disaster. If having some cash on hand is your thing, the right amount depends on your typical spending habits, says Kates. "If you run a cash-heavy small biz or have a business that relies on a large amount of cash, you might need to hang on to more than average. If you seldom use cash for personal or business transactions, a bit might go a long way."
What Happens If My Bank Flops?
If a bank designated as an FDIC member goes belly-up, the FDIC will swoop in within a few days and do one of the following:
- Transfer your account to another FDIC-insured bank, keeping your insured balance intact.
- Write you a check for the insured balance at the failed bank.
In the unlikely event that your bank topples, the FDIC will promptly send you a notification.
Bottom Line
From 1929's Great Depression catastrophe to the savings-and-loan crisis of the 1980s, the mortgage crisis of 2007-2014, and more recent blunders like Silicon Valley Bank, Signature Bank, and First Republic Bank in 2023, recessions and bank failures have always lurked in the shadows. But with federal deposit insurance guarding your precious stash, your dough will stay put, whether it's during a recession or a period of economic growth. So, keeping your money in the bank could be safer than hoarding cash at home. Just remember to stay within the insurance limits! And hey, keep calm and carry on!
- The Trump administration's fresh tariffs could potentially crank up inflation or even trigger a recession, according to economists.
- If a bank designated as an FDIC member goes belly-up, the FDIC will transfer your account or write you a check for the insured balance at the failed bank, up to $250,000 per depositor, per ownership category.
- Not all investments are insured under the FDIC umbrella; stocks, bonds, mutual funds, crypto assets, annuities, safe deposit boxes, and non-bank payment providers like PayPal are not insured.
