Is Your Money Safe in a Bank During a Recession? (2024)

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  • Banking regulation has changed over the last 100 years to provide more protection to consumers.
  • You can keep money in a bank account during a recession and it will be safe through FDIC and NCUA deposit insurance.
  • Up to $250,000 is secure in individual bank accounts and $500,000 is safe in joint bank accounts.

Recessions are a normal part of the business cycle. Nevertheless, they're still scary to think about. So if you start to hear economists talking about a possible incoming recession, you might wonder about your money's safety.

If you're concerned about whether money is safe in a bank during a recession, there's good news — your money will be likely secure in a bank account. Here's what you need to know about banking during economic downturns.

What happens to banks in a recession?

Impact of economic downturns on banking institutions

Historically, the number of U.S. bank failures has peaked during periods of economic decline. According to Pew Research, two of the biggest banking crises occurred around times of recessions — between 1980 and 1995 and between 2007 and 2014.

Most people also think about the Great Depression when it comes to bank failures. During the Great Depression, 9,000 banks failed. People who had bank accounts at these financial institutions lost all their money.

The U.S. government has since implemented policies to protect consumers and their deposits, though. The Federal Deposit Insurance Corporation (FDIC) was established in 1933 in response to the bank failures.

"The crucial thing to recognize about the Great Depression and what's come after that is the kind of bank failures that we had prior to 1934 are very unlikely to occur again because the United States created deposit insurance," adds Jeffrey Miron, a senior lecturer of economics and director of undergraduate studies at Harvard University.

Through the Banking Act of 1933, the FDIC could protect consumer bank accounts through deposit insurance.Miron says people's incentives changed after this new policy was created.

"If you believe the federal government's promise, then you don't have to worry that other people might be trying to get their money out first," says Miron.

Banking failures during the Great Recession

Significantly fewer banks shut down during this period of economic downtown than during the Great Depression. According to the FDIC, approximately 500 bank failures occurred between 2008 and 2015. In comparison, about 4,000 banks failed in 1933 alone.

Since bank accounts were backed by FDIC insurance, the Great Recession didn't impact depositors in the same way the Great Depression did.

"Depositors today never lose a cent even beyond the deposits that are legally insured, and the reason is, when a bank gets into trouble, the FDIC basically looks for acquiring banks, and all the deposits are transferred to the acquiring banks. That happened in the 2008 crisis," says Charles Calomiris, aColumbia Business School professor in finances and economics.

You can rest assured that your money will likely be safe at a financial institution, and you won't need to take it out of your bank account.

"It's very unlikely for history to repeat itself," says Maggie Gomez, CFP® professional and owner ofMoney with Maggie. "I would still have trust in the banking system, especially over keeping your money in your house or someplace that is exposed to much more likely risks of loss."

How your money is protected

Money deposited into bank accounts will be safe as long as your financial institution is federally insured.

The FDIC and National Credit Union Administration (NCUA) oversee banks and credit unions, respectively. These federal agencies also provide deposit insurance.

When a financial institution is federally insured, money deposited into a bank account will be secure even if the financial institution shuts down. Your money will not be lost. It is usually transferred to another bank with FDIC insurance, or you'll receive a check.

Savings accounts, checking accounts, money market accounts, and CDs are examples of federally insured bank accounts. Up to $250,000 is secure in individual bank accounts, and $250,000 is protected per owner in joint bank accounts.

Risk factors to consider

Bank health indicators

A bank failure can occur when a financial institution doesn't meet its obligations. For example, if a bank becomes insolvent — its liabilities are more than its assets — it will be shut down.

Sometimes the perception of a bank's overall financial performance can also cause problems. Bank runs occur when many people become worried about their money and start withdrawing it simultaneously. If banks lose too much of their cash reserves, they can collapse.

Role of government and central banks in stability

The FDIC and NCUA have deposit insurance limits at financial institutions. If you deposit more than $250,000 in an individual bank account, any money that surpasses the deposit insurance limit isn't protected. These government agencies do not guarantee that you'll get uninsured deposits back if a financial institution fails.

Strategies for safeguarding your money

Gomez suggests using two different banks as one way of recession-proofing your personal finances. This may be particularly helpful if you keep more than the insured deposit limit in bank accounts.

Gomez says you could have your money deposited in an online bank and a brick-and-mortar bank. You'll be able to deposit or withdraw money at brick-and-mortar locations and earn interest on a high-yield bank account at an online bank.

Financial experts generally advise keeping three to six months' worth of expenses in a bank account as an emergency fund. How much you should keep in your account may also depend on whether you're saving up for a personal goal, like a down payment on a mortgage or a new car.

Banks during recessions FAQs

Is my money safe in a bank during a recession?

Your money is safe in a bank, even during an economic decline like a recession. Up to $250,000 per depositor, per account ownership category, is protected by the FDIC or NCUA at a federally insured financial institution.

What happens if my bank fails during a recession?

If you're wondering what happens if a bank fails, the FDIC will take control of the assets. It will look to sell the assets to another FDIC-insured financial institution. If a bank doesn't want to buy the assets, the FDIC will send all the customer's checks for the amount of their insured deposits.

How can I ensure my money is protected during a recession?

Check to see if the place where you're keeping your money is protected by FDIC or NCUA insurance. Also, be mindful that there are federal insurance limits per depositor and account ownership category at each bank.

Can all types of bank accounts and investments be insured by the FDIC or NCUA?

The FDIC or NCUA provides insurance for checking, savings, CD, and money market accounts. Investment accounts are not FDIC or NCUA insured.

What measures do banks take to remain stable during recessions?

Banks may make it more difficult to borrow money and increase cash reserves.

Sophia Acevedo, CEPF

Banking Editor

Sophia Acevedo is a banking editor at Business Insider. She edits and writes bank reviews, banking guides, and banking and savings articles for the Personal Finance Insider team. She is also a Certified Educator in Personal Finance (CEPF).Sophia joined Business Insider in July 2021. Sophia is an alumna of California State University Fullerton, where she studied journalism and minored in political science. She is based in Southern California.You can reach out to her on Twitter at @sophieacvdo or email more about how Personal Finance Insider chooses, rates, and covers financial products and services >>Below are links to some of her most popular stories:

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Is Your Money Safe in a Bank During a Recession? (2024)


Is Your Money Safe in a Bank During a Recession? ›

Your money is safe in a bank, even during an economic decline like a recession. Up to $250,000 per depositor, per account ownership category, is protected by the FDIC or NCUA at a federally insured financial institution. What happens if my bank fails during a recession?

Should I take my money out of the bank during a recession? ›

If you have money in a checking, saving or other depository account, it is protected from financial downturns by the FDIC. Beyond that, investment products are more exposed to risk, but you can still take some steps to protect yourself.

Can the government take money from your bank account in a crisis? ›

The government can seize money from your checking account only in specific circ*mstances and with due process. The most common reason for the government to seize funds from your account is to collect unpaid taxes, such as federal taxes, state taxes, or child support payments.

Where is my money safest during a recession? ›

Cash equivalents include short-term, highly liquid assets with minimal risk, such as Treasury bills, money market funds and certificates of deposit. Money market funds and high-yield savings are also places to salt away cash in a downturn.

Should I worry about my money in the bank? ›

Most deposits in banks are insured dollar-for-dollar by the Federal Deposit Insurance Corp. This insurance covers your principal and any interest you're owed through the date of your bank's default up to $250,000 in combined total balances.

What to do with money in bank before recession? ›

Worried about a potential recession? Here's 9 steps to prepare your finances now
  1. Take stock of your finances.
  2. Build your emergency fund.
  3. Create a budget.
  4. Keep your cash where it's rewarded.
  5. Eliminate variable-rate and high-cost debt.
  6. Think twice before eliminating other debt.
  7. Don't change your investing strategy.
Apr 24, 2023

How safe are the banks right now? ›

Most banks are insured by the government's Federal Deposit Insurance Corporation, or FDIC, Servon said. That insurance covers up to $250,000 per customer, and $500,000 for joint accounts. That means that if a bank loses its customers' money, the federal government will reimburse it.

Can banks seize your money if the economy fails? ›

Banking regulation has changed over the last 100 years to provide more protection to consumers. You can keep money in a bank account during a recession and it will be safe through FDIC and NCUA deposit insurance. Up to $250,000 is secure in individual bank accounts and $500,000 is safe in joint bank accounts.

Why are people pulling cash out of banks? ›

Customers in bank runs typically withdraw money based on fears that the institution will become insolvent. With more people withdrawing money, banks will use up their cash reserves and can end up in default.

Are people withdrawing cash from banks? ›

A recent CNBC Select and Dynata Banking Behaviors Survey found that 40% of respondents who reported having withdrawn cash from their savings say they did so to cover fixed bills, such as a car payment. The second most cited reason, at 38%, was to cover variable expenses like groceries.

Can you lose your savings in a recession? ›

Recessions can impact your savings in many different ways. Lower interest rates, stock market volatility, and potential job loss can drain your savings. Diversifying your investments, building an emergency fund, and opening a high-yield savings account can help protect your savings.

What not to do in a recession? ›

What Are the Biggest Risks to Avoid During a Recession? Many types of financial risks are heightened in a recession. This means that you're better off avoiding some risks that you might take in better economic times—such as co-signing a loan, taking out an adjustable-rate mortgage (ARM), or taking on new debt.

How do you not lose money in a recession? ›

Build up your emergency fund, pay off your high interest debt, do what you can to live within your means, diversify your investments, invest for the long term, be honest with yourself about your risk tolerance, and keep an eye on your credit score.

Is Capital One safe from collapse? ›

Your money is safe at Capital One

The FDIC insures balances up to $250,000 held in various types of consumer and business deposit accounts.

What happens to your money if a bank fails? ›

If your bank fails, up to $250,000 of deposited money (per person, per account ownership type) is protected by the FDIC. When banks fail, the most common outcome is that another bank takes over the assets and your accounts are simply transferred over. If not, the FDIC will pay you out.

Is Bank of America safe from collapse? ›

Bank of America is just one place below JPMorgan Chase on both the 2023 G-SIBs list and the Federal Reserve's list of the largest U.S. banks, which is why it was chosen in our research as one of the safest banks.

What should you not do in a recession? ›

Avoid becoming a co-signer on a loan, taking out an adjustable-rate mortgage (ARM), or taking on new debt. Don't quit your job if you aren't prepared for a long search for a new one. If you own your own business, consider postponing spending on capital improvements and taking on new debt until the recovery has begun.

Are people pulling money out of banks? ›

Here's Who's Pulling Their Money. Total deposits at commercial banks fell by just over $1 trillion from April 2022 to May 2023. People 40 years old and younger are more likely to pull their money, with 38% of them reporting that they moved deposits compared to 23% of those over 40.

Where is the safest place to put your money in a depression? ›

Private Vaults are the most secure way to protect wealth. Moving your liquid assets into hard assets such as gold, sliver, diamonds, or coins helps invest in depression proof investments.

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