How To Recession-Proof Your Savings

Man putting coins into a wallet

The Balance / Alice Morgan

Key Takeaways

  • Recession-proofing your savings means coming up with a strategy to weather a possible loss of income and to maximize your return if you’re lucky enough to leave your savings untouched during the recession.
  • Building  an emergency fund and paying down debt are some of the best ways to recession-proof your savings.
  • Undertaking a pre-recession review of your investments can help ensure your retirement savings are properly diversified.
  • High-yield savings accounts, money market accounts, certificates of deposits (CDs), and government bonds can all play a part in your savings strategy.
  • Cutting household expenses can help you keep more of your money during a recession.

How a Recession Impacts Your Savings

During a recession, your savings may take a hit. If you lose your job, you’ll probably have to dip into your savings to pay your bills. Even if you keep your job, the value of your investments and the amount of any passive income you typically earn from them may go down.

That’s because stock prices may fall during a recession. According to data published by Schroders, a global investment manager, the widely watched S&P 500 stock index has dropped an average of 6.4% during U.S. recessions since 1929. 

In fact, during the Great Depression, S&P returns plummeted more than 80% and in the Great Recession, they fell more than 37% (though if you exclude those periods, the index actually crept up an average of 1.8% during serious economic slumps since the late 1920s).

What To Do Before a Recession

Before and during a recession, you can make moves to shore up your savings rather than just standing on the sidelines and hoping for the best. Here are four steps you can take when recession looms to make sure you have a nest egg to count on when it hits.

Build Up Emergency Savings

If you don’t already have an emergency fund, creating one should be your top priority. A majority of CPA financial planners who responded to a 2020 survey said they believe it’s the most important thing Americans can do to prepare for a severe economic downturn. 

“It’s a good idea to have some savings set aside specifically for emergencies,” Alex Caswell, a chartered financial and certified financial planner with RHS Financial, told The Balance via email. “This can help you weather unexpected expenses, like job loss or unexpected medical bills. Aim to save enough to cover at least three to six months’ of living expenses.”


A high-yield savings account is one of the best places to keep your emergency fund because you can access the money easily when you need it. These accounts pay higher rates than savings accounts at traditional banks, and are sometimes only available online.

An emergency fund that can pay six months’ of living expenses is appropriate for most people, said Caleb Tucker, a chartered financial analyst who is director of portfolio strategy at Merit Financial Advisors.

“For some people, especially retirees, it’s possible that more emergency savings should be kept on hand, either in cash or very short-term, cash-like investments,” Tucker told The Balance via email. “You want to have enough savings to avoid having to tap [into] investments or other assets to pay bills in the event of [a] job loss or large unexpected expenses.”

Review Your Investments

For many people, retirement savings are tied up in investments in the stock and bond markets. Caswell advises going over your investments to see where you can diversify in order to cushion those investments from market volatility.

“Consider spreading your money across different types of investments, like stocks, bonds, real estate, inflation-protected Treasuries, and commodities,” he said.

Which stocks should you consider? Look at stocks in the health care, utility and consumer goods sectors. Although consumers generally curtail spending during a recession, they still need health care, electricity and other utilities, and consumer goods like food.

As you’re combing through your investments, take into consideration factors such as your tolerance for risk and your time horizon when it comes to retirement. The closer you are to retirement, the more cautious you may want to be with your investments.

Reduce Debt

To save money on interest charges and preserve money you may need during a recession, pay off high-interest debt such as credit card bills.

“By paying off debt,” Caswell said, “you'll be freeing up more money to put into savings or investments.

Credit card debt in particular is important to get under control because the average credit card rate is double digits, which is higher than rates on many other kinds of debt. 

If you’re coping with a hefty amount of high-interest debt, consider a debt consolidation loan with a lower overall interest rate or a balance transfer credit card with a 0% introductory APR.

Stash Other Savings in Higher-Yield Vehicles

Once you have your emergency fund, you may want to sock away any other savings in an account that pays an even higher rate than a savings account, such as a certificate of deposit (CD) or money market account (MMA)


You’ll want to use CDs for money you don’t think you’d need immediately because you usually can’t withdraw your money without penalty before the CD term is over. If you’re expecting a longer-term downturn you may consider building a CD ladder that includes CDs with different term lengths, such as three months, six months, and one year.

Government bonds are another option for longer-term savings. They may have even better rates than CDs or MMAs, but also lock up your money for even longer. William Bevins, a certified financial planner and fiduciary adviser in Franklin, Tennessee, recommends putting money in Series I savings bonds or Treasury bills as a way to recession-proof your savings.

Series I savings bonds, also known as I bonds, are available from the U.S. Treasury Department, and are designed to protect against inflation. An I bond pays both a fixed interest rate and an inflation-adjusted rate. The department sets the inflation-adjusted rate twice a year. 

Treasury bills come with terms ranging from four weeks to 52 weeks. When you buy a T-bill, you’re essentially giving a loan to the federal government to cover its debts and expenses.

The Treasury Department sells these bills at a discount. When a bill matures, you receive the full face value, above what you paid at the discounted rate. Because they’re backed by the federal government, T-bills are viewed as some of the safest investments available.

What To Do During a Recession

Once a recession hits, there are steps you can take to make sure the money saved doesn’t disappear overnight.

Trim Expenses

To hang onto as much money as possible, look for ways to cut expenses. For instance, consider cooking at home rather than dining out, canceling unused subscriptions (like streaming services and gym memberships), and shopping for deals on everything from groceries to car insurance.

Need help slashing expenses? Create a household budget with the help of a budgeting spreadsheet or a budgeting app. Once you’ve set up the budget, be sure to stick to it.

Negotiate Your Bills

As part of your cost-cutting efforts, contact service providers that you pay on a monthly basis. For example, you could find out if your internet service provider offers a cheaper plan or if your home insurance company offers discounts that you’re not taking advantage of.  

If you’re not able to get discounts, rebates, or better rates from your current service providers, check to see if they have a competitor with lower rates or promotional offers.

Delay Big Purchases

If you’re eyeing a new sofa or a car, think about whether you can put off the purchase. If possible, you’ll want to keep that money to further pad your emergency fund or pay down more debt. If you really need to buy it now, look into purchasing a used sofa or used car instead, as those are typically cheaper.

What To Tell Yourself If Things Get Bad

A recession can rattle your finances. Remember, though, that recessions don’t last forever. At some point, the economic skies will change from stormy to sunny. In fact, the average recession since 1980 has lasted less than 10 months.

To help weather a recession, stick to this mantra: Keep on saving. Having more money at your disposal can stabilize your finances during an economic downturn.

You’ll need discipline, commitment, and a plan that you stick to if you want to save money. However, once you’ve begun to develop a savings routine, you’ll have established a habit that should make it easier to set aside money each month or pay period.

Frequently Asked Questions (FAQs)

Where should I save money during a recession?

There’s no one place to keep your savings during a recession. However, you certainly want to consider starting or adding to an emergency fund that could cover roughly three to six months’ worth of your household expenses. It’s smart to park that emergency fund in a high-yield savings account, enabling quick access to your cash while earning healthy interest on it.

Is saving good during a recession?

Saving is a good idea at any time because you should be financially prepared for the unexpected. But it’s even more important during a recession because you’re more likely to lose your job or have your work hours reduced during that time.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Schroders. “How Do US Stocks and Earnings Usually Perform During a Recession?

  2. AICPA. “Lessons Learned From COVID-19 Can Help Americans Recession-Proof Their Finances: AICPA Survey.”

  3. RHS Financial. “About Alex Caswell, CFA CFP®.”

  4. Merit Wealth Advisors. “Caleb Tucker.”

  5. William Bevins. “Franklin, TN Fiduciary Financial Advisor.”

  6. TreasuryDirect. “I Bonds.”

  7. TreasuryDirect. “Treasury Bills.”

  8. National Bureau of Economic Research. “US Business Cycle Expansions and Contractions.”

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