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Yahoo
2 days ago
- Business
- Yahoo
Is your money safe in a bank during a recession?
As scary as they can be, recessions are normal — and temporary. But that doesn't make them any less painful. With the possibility of a recession dominating headlines in recent months, it's no surprise if you're concerned about the security of your money. You may even wonder if your money is safe in a bank during a recession. Two pieces of good news may help calm your fears: First, according to JPMorgan Research, the likelihood of a recession has dropped from 60% to 40% in recent weeks. Second, even if a recession does happen, your money is safe in a bank. Continue reading to learn how banks protect your cash, what happens when they fail, and how you can keep your money safe during a recession. Banks are generally safe at any time, including during a recession. In 1933, following the Great Depression, the Federal Deposit Insurance Corporation (FDIC) was created to promote consumer trust in banks. The FDIC protects insured bank deposits of up to $250,000 per customer, per insured bank, per ownership category, in case of bank failure. FDIC insurance doesn't apply to all account types; it only covers certain deposit accounts, such as savings accounts, checking accounts, money market accounts, and certificates of deposit (CDs). Money invested in stocks, bonds, mutual funds, and other investments isn't covered. Bank failures are unlikely, but they do happen on occasion, and especially during a recession. While there has only been one bank failure in 2025, there were 157 in a single year following the Great Recession. But even when banks fail, FDIC insurance protects bank customers in one of two ways: The FDIC may open a new account for you at an insured bank with a balance equal to your insured balance at the failed bank. The FDIC may send you a check in the amount of your insured balance at the failed bank. According to the FDIC's website, it has historically paid customers within a few days of failed bank closures. And since the creation of the FDIC, no depositor has ever lost insured funds. Credit unions and banks are both safe during a recession, provided they're both federally insured. Like banks, credit unions offer insurance on deposits of up to $250,000. Though FDIC insurance doesn't apply to credit union deposits, credit unions are insured by the National Credit Union Administration (NCUA), which provides similar coverage. While banks and credit unions provide the same amount of financial protection during a recession, credit unions have characteristics that may make them feel safer. For example: Credit unions are member-owned. Unlike banks, credit unions are nonprofit organizations and don't have to cater to shareholders. This generally means they put members' needs first and offer highly personalized customer service, which can provide some peace of mind during financially unstable times. Credit unions tend to have fewer fees, more affordable loans, and higher savings rates. Because credit unions are nonprofit entities, they can pass profits on to members in the form of lower fees and higher savings rates. These extra savings can go a long way during a recession, when members may be looking to cut costs wherever they can. Credit unions take less risk compared to banks. Because banks operate for a profit, they're generally willing to take on more risk in the pursuit of bigger returns. For example, the majority of subprime mortgages in 2006 were issued by banks, not credit unions. Credit unions, meanwhile, are more risk-averse, which can provide a sense of stability for their members. You can keep your money safe during a recession by keeping it in the right place. Here are some tips to make sure your cash is secure if and when a recession hits: Make sure you bank with insured institutions. FDIC or NCUA insurance protects your deposits as long as your bank or credit union is backed by one of these organizations. To confirm your bank is FDIC-insured, use the FDIC's BankFind Suite tool. To check a credit union's NCUA status, use the NCUA's Credit Union Locator tool. Get extra FDIC coverage. If you have a lot of money saved, $250,000 worth of insurance may not be enough. Luckily, some banks allow you to insure deposits beyond the standard $250,000 by using something called reciprocal deposits. This system spreads your money between multiple partner banks, each of which can insure up to the standard limit. Alternatively, you can insure funds beyond the $250,000 maximum simply by opening accounts at multiple banks. Build an emergency fund. An emergency fund is always important, but it's particularly crucial during a recession. Having cash on hand in a safe, high-interest account like a high-yield savings account gives you extra comfort and protection if an emergency does happen. Read more: Recession-proof your money: How to protect your savings, investments, mortgage, and more Yes, keeping your money in the bank during a recession is generally a good idea. You can also keep your money in a credit union. As long as your bank or credit union is insured by the FDIC or NCUA, your deposits will be safe up to federal limits. Both banks and credit unions are safe places to keep your money during a recession. Banks are insured by the FDIC, and credit unions are insured by the NCUA. Both types of financial institutions insure up to $250,000 per depositor, per account category. Both banks and credit unions are safer than keeping physical cash, which can get lost, stolen, or damaged. Generally, the government can't take money from your bank account in a crisis. However, it may be able to garnish wages and seize your tax refund if you owe outstanding debt, such as federal student loans.
Yahoo
06-05-2025
- Business
- Yahoo
Do mortgage rates go down in a recession?
There's been a lot of talk lately about the possibility of a recession. In April, JPMorgan Research increased the probability of a recession in 2025 to 60%, up from the earlier prediction of 40%. Torsten Sløk, a partner and chief economist at Apollo Global Management, an alternative asset manager and owner of Yahoo Inc., puts the odds of a recession this year at 90%. Sounds bleak, right? Yet, a recession may be just the kind of economic setback that pushes mortgage rates down. This embedded content is not available in your region. Clement Bohr, economist with the UCLA Anderson Forecast, recently issued a Recession Watch analysis. "Every economist out there right now is saying just this tariff policy alone could trigger a recession in the U.S.," Bohr told Yahoo Finance in a phone interview. However, he added that forecasting a recession is difficult because policy-making decisions by the Trump administration vary day-to-day. Read more: The best mortgage lenders for low or no down payments In this article: What happens to mortgage rates in a recession? "Usually rates come down in a recession," Bohr said. "But it's not always the case, or at least if we look at what's going to happen this time around, it's not necessarily going to be the case." Bohr said mortgage rates usually come down in a recession because, as the stock market becomes more volatile, investors shift their portfolios into government bonds. This pushes the prices of the bonds up — and yields (interest rates) fall. What may be different this time? "The shock that's going to trigger this recession is also a shock that's going to boost inflation, at least over the short term," Bohr added. If the trade war with China causes supply chain interruptions, Bohr said the risk of inflation might put the Federal Reserve in a position to not lower rates any further. With the counterpressures of possible inflation and potential recession, mortgage rates may not move much. "I would be surprised if interest rates go much higher because we have seen now that the administration is sensitive to that," Bohr said. There's also a chance that the nation experiences a mild or very brief recession, which would likely not impact interest rates. That's the thing about recessions — you don't know you're in one until it's already underway — or nearly over. The National Bureau of Economic Research declares a recession after "a few months" of data indicating a declining economy. Learn more: How the Federal Reserve rate decision impacts mortgage rates A 50-year history of recessions and mortgage rates There have been seven recessions over the past 50 years. In all of those economic downturns, 30-year mortgage rates eventually dropped. Sometimes, well after a recession. In the more than yearlong recession lasting from late 1973 to early 1975, rates fell, then rose, then dropped again. In the much shorter, five-month recession of 1980, mortgage rates skyrocketed from 12.85% to over 16% before dropping to nearly 12% as the recession ended. However, between the end of June 1980 and the beginning of the next recession one year later, rates crept up to 17% and even higher before dropping again. In the most recent recession, which lasted barely three months in the early pandemic year of 2020, mortgage interest rates barely budged, hovering near the mid-3% range. Yet, as the pandemic lingered, rates eventually fell to 2.65% before climbing to where they are today. It may take only a slight dip in rates to unlock the housing market Bohr said that existing home sales have been "stuck" for so long, with homeowners sitting on very low-rate mortgages, that they may be sitting in houses that just don't fit their lifestyles anymore. "At some point, say even just a 1% decline in the mortgage rate — which would be quite something — may be enough to trigger a lot of them to finally relocate into something that fits them better,' Bohr said. 'And they'll just eat the extra couple percentage-point margin in the new mortgage." With his outlook of mortgage rates not moving substantially higher or lower, it's a nugget of hope for prospective home buyers. "Even a slight decline in mortgage rates could boost the housing market quite substantially," he said. Read more: Should you buy a house during a recession? Do mortgage rates go down in a recession? FAQs Do home prices drop in a recession? They generally do, but as you can see from the chart above, most mortgage rate movements — up or down — happen outside the very narrow time frames of recessions. What happens if you have a mortgage during a recession? If you have a fixed-rate mortgage, your payment will remain the same unless changes occur with taxes, insurance, or any other escrow accounts that may be a part of your monthly payment. With an adjustable-rate mortgage, if you are beyond the introductory rate period, your payment may reset with the movement of interest rates at its next periodic rate adjustment. Are mortgage rates expected to drop? Most analysts aren't expecting any drastic drops in home loan rates within the next year. Of course, that can change with a dramatic shock to the U.S. economy. Will we ever see a 3% mortgage rate again? It's not likely. However, few, if any, people can forecast an unexpected economic setback. The pandemic was the most recent example — and the 2008 housing market crash another. Laura Grace Tarpley edited this article.
