US Economy Facing a Slowdown: Experts Discuss Financial Security During a Recession

After a strong growth year in 2023, the U.S. economy is now showing signs of cooling. J.P. Morgan Research has increased the likelihood of a U.S. and global recession to 35% by the end of this year, up from 25% mid-year. Additionally, the Bureau of Labor Statistics reported that the country created 818,000 fewer jobs from March 2023 to March 2024 than originally estimated. What does this mean for your finances? With these indicators pointing towards an economic slowdown and potential recession, many are wondering if it is safe to keep their money in a bank. Taylor Kovar, CFP and founder and CEO of 11 Financial, believes that banks are generally considered the safest places to store cash, as deposits are insured by the FDIC (Federal Deposit Insurance Corporation) up to $250,000. Michael Collins, CFA and founder and CEO of WinCap Financial, shares this view. He emphasizes that while it may be tempting to withdraw all funds and keep them at home, banks are usually safer and offer protection against theft or loss. Additionally, keeping money in a bank allows for easier access to funds in case of emergencies or unexpected bills. Historically, the number of bank failures in the U.S. peaked during economic downturns, as an analysis by the Pew Research Center shows. Between 1930 and 1933, during the Great Depression, more than 9,000 banks across the country failed, leading to losses of over $1.3 billion—equivalent to approximately $27.4 billion today. In response to the thousands of bank failures during the Great Depression, the U.S. government established the FDIC in 1933 to protect consumers and their deposits. Since its inception, no depositor has lost a cent of insured funds. Should your bank ever fail, FDIC insurance covers the account balance, including accrued interest up to the bank’s closure date, in dollar amounts up to the insurance limit. You do not need to apply for FDIC insurance; you are automatically covered once you open an account at an FDIC-insured institution. Use the FDIC’s BankFind tool to ensure your financial institution is insured. Even though money in a bank account is generally safe during a recession, strategic approaches can provide a sense of security if you are concerned about maintaining and growing your finances. One option is to deposit your cash in high-yield savings accounts, certificates of deposit (CDs), or money market accounts, which offer low risks but better returns than traditional savings accounts. Liquidity is crucial in uncertain times. Kovar recommends keeping some funds in cash or easily liquidated instruments like Treasury bills. A study by the Consumer Financial Protection Bureau (CFPB) showed that only 27.1% of households could cover their expenses for more than six months, while 19.5% would last less than two weeks if they lost their primary source of income. An alternative method to preserve value is investing in precious metals like gold, which often retain their value during recessions. You can purchase physical gold, gold ETFs, or gold futures and options. To ensure your financial security during a recession, take steps now to strengthen your finances. Low-risk options like high-yield savings accounts and CDs can keep your money safe and generate interest. For additional security, you might spread your assets across multiple banks to maximize your FDIC insurance coverage.