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Where to keep your money in a recession

In a recession, it's more important than ever to keep your money somewhere safe. Getty Images

After plenty of speculation about a possible recession, the Fed confirmed many people's suspicions last week. In its March minutes, it forecast a "mild recession" later in 2023. It's not surprising after years of high inflation, interest rate hikes and recent bank failures. But it's just one more thing for the average person to worry about.

Recessions bring increased unemployment, decreased purchasing power and stock market losses, making it more important than ever to keep your money somewhere safe. In this article, we'll explore two places to do just that.

Check out high-yield savings rates here to learn if this option is right for you.

Where to keep your money in a recession

Recessions bring plenty of financial woes. You can protect your money by putting it in one of these two places.

High-yield savings account

High-yield savings accounts are safe from market volatility, meaning you won't stand to lose the money you deposited (the way you might if you invested in the stock market, for example). Your earnings may increase or decrease based on the federal funds rate, but your principal balance will be protected up to $250,000 thanks to FDIC insurance.

The money you place in a high-yield savings account earns interest at a much faster rate than in a regular savings account. Regular savings account rates are currently about 0.25%, while average high-yield savings account rates are roughly between 4% and 5%. This makes a high-yield account worth having at any time, but especially when the economy is weak. The higher the interest rates are, the more you stand to earn.

You can find the right high-yield savings account for you by shopping around and comparing lender offers. Start by checking out current rates here.

Certificate of deposit (CD)

Certificates of deposit (CDs) also offer comparatively high interest rates — currently, around 5%. Unlike high-yield savings accounts, whose rates vary, CD rates are fixed when you open the account.

Since inflation often precedes a recession, and interest rates rise when inflation is high, opening a CD before or at the beginning of a recession can mean securing a higher interest rate than you might at other times. This rate will stay the same for the length of the CD term (typically six months to five years), so even if interest rates fall, you'll still enjoy high returns.

As with savings accounts, the money you put into a CD is protected by FDIC insurance up to $250,000 per bank, per account. One of the big differences between CDs and high-yield savings accounts is their liquidity.

You may withdraw funds from a high-yield savings account anytime (within withdrawal limits) without penalty. With a CD, however, you must keep your money in the account until the term expires. If you withdraw funds before that time, you incur penalties. So make sure you can afford to keep your money locked up for the entire term.

Explore current CD rates here to see how much you could be earning.

The bottom line

If you're unsure whether to open a high-yield savings account or CD, there's no reason you can't open both. In fact, it can be wise to split your money between the two to maximize your earnings while allowing you to withdraw cash if you need it.

Compare your options by reviewing high-yield savings account and CD rates now.

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