According to the latest CNBC CFO Council quarterly survey, 60% of CFOs expect a recession in the second half of the year, while another 15% say a recession will hit in 2026. In early April, global investment bank Goldman Sachs also raised its estimate of the likelihood of a U.S. recession from 35% to 45%.
When facing a possible recession, it’s important to safeguard your financial stability. However, once a recession hits, that becomes more difficult for the following reasons:
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Savings interest rates may decline: To stimulate the economy and encourage spending, the Federal Reserve will often slash rates. As a result, loans will become less expensive, but the rates on deposit accounts — such as savings accounts and certificates of deposit (CDs) — will also decline. That means any money you have saved will grow at a much slower pace.
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Earnings may stagnate: During a recession, unemployment levels are up, and workers’ wages tend to stagnate, so you may not qualify for a raise. Many businesses also initiate layoffs.
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Lenders may tighten their standards: During a recession, lenders often institute stricter lending requirements for borrowers, making it more difficult to qualify for new credit or loans.
This is why it’s important to be proactive and recession-proof your savings as much as possible.
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To minimize the impact of a recession on your financial well-being, follow these steps:
It’s a good idea to check your budget and review your spending to identify any corners you can cut. You can keep a close eye on your income and spending with a tool like Quicken’s Simplifi money management app. Yahoo Finance readers can try Simplifi free for 90 days. Act now!
Canceling unnecessary services or subscriptions, reducing the number of streaming services you use, and sticking to a meal plan and grocery list are all small ways to trim your spending. If money is tight, you may need to take some more drastic measures, such as adding a roommate to reduce your housing expenses, instituting shopping freezes, or shopping around for cheaper insurance.
Read more: 7 ways to save money on a tight budget
It’s unavoidable: You’re managing your finances well and making progress toward your goals, when an unexpected problem pops up. Perhaps your cat becomes ill and needs to visit the emergency vet, or your car refuses to start. Whatever the case may be, those emergencies can leave you scrambling to cover the cost, or you may end up using a high-interest credit card to foot the bill.
Building an emergency fund — a safety net in a separate savings account — is a critical step to avoid unnecessary debt. Although experts recommend saving enough cash to cover at least three to six months of expenses, the most important thing is to start small. Saving $1,000, $50, or even $100 can provide some financial cushion against the unexpected, and you can add to it over time.
To make your savings work as hard for you as possible, move a portion of your cash to an HYSA. Nationally, the average rate for savings accounts is just 0.41%, but the best high-yield savings accounts offer rates as high as 4% APY or more.
Rates tend to decline during a recession, but an HYSA will provide a higher yield than you’d get from a basic checking or savings account.
As mentioned, the Fed typically cuts rates when we’re in a recession. That decision causes the rates on deposit accounts to decrease.
However, there are some deposit products that allow you to earn a fixed interest rate over a set period of time, such as CDs. Opening an account will allow you to lock in today’s competitive rates for months or even years, maximizing your money. And like HYSAs, the best CD rates hover at about 4% APY for terms of around six to 18 months.
One of the best investments you can make is to pay down high-interest debt. Credit cards can have rates well into the double digits, and even car loans and personal loans can be expensive in today’s high-interest-rate environment. Paying extra toward your balances will help you save money on interest and get rid of your debt faster.
Read more: Recession-proof your money: How to protect your savings, investments, mortgage, and more
If your savings account is with a financial institution backed by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA), your money is safe.
Thanks to FDIC and NCUA insurance, your deposits at these institutions are insured up to a maximum of $250,000 per person, per institution, per ownership category.
The rates on your savings account may drop, but your money is otherwise protected from losses or bank failures.
No investment is completely safe or a guarantee. However, more conservative options like bonds can be a good option. For many people, a diversified investment portfolio — meaning a portfolio that invests in a broad range of companies and industries — is a good option. If you aren’t sure if you have the right investments or the correct level of portfolio diversification, meet with a financial adviser to review your situation and goals and adjust your investments.
Unless you’re at risk of falling behind on your bills, such as your mortgage payment or electric bill, try to keep up with your current retirement savings rate. Continuing to contribute during a recession will help your money grow and compound, setting you up for a more secure retirement.
