A Recession Can Decimate Your Savings. Protect Your Money by Keeping It in These Places

The best place for your cash? That depends on what you're using it for.

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The economic hits keep coming. In addition to high prices, stock market freefalls and regularly changing tariffs, there's a recession on the horizon, too. Your money has been through enough already. What can you do to keep it safe from this next threat?

Stuffing all your cash under your mattress is clearly a bad idea, but so is putting it all in any one account. Where you should keep your money in a recession depends on how you plan to use it.

From your everyday spending cash to your long-term savings, here's where your hard-earned money will be safest -- and work the hardest for you.

💵 Where to keep your spending money in a recession

Rewards checking account

Even if your paycheck is directly deposited into your checking account, you shouldn't keep all your money there. 

Your checking account funds should cover everyday spending and bills, plus a cushion for other expenses. The rest of your cash should be in an account that earns a high interest rate so it can grow. Plus, when you keep money earmarked for savings in a separate account, you're not tempted to dip into it.

You can still get returns with the right checking account. Some top high-yield checking accounts offer APYs up to 3.30%, far better than the 0% you'll get with a typical checking account.

Why not earn some interest on your spending money if you can? With prices high across the board, every little bit helps.

🚨 Where to keep your emergency fund in a recession

High-yield savings account

An emergency fund is a must-have at any time but especially when the economy is shaky. Whether you're hit with a layoff or a sudden medical bill, your emergency fund can help you avoid going into debt to cover your expenses.

The best place to keep an emergency fund is in a high-yield savings account where your money is easily accessible when you need it. Unlike traditional savings accounts, top HYSAs earn annual percentage yields more than 10 times the national average, with some as high as 4.4% APY. 

With a higher yield, you'll benefit from compounding interest. That's when you're not just earning interest on your initial deposit but accumulating interest on top of the interest you already earned. Your money grows faster, giving you a bigger balance to draw from when the time comes.

⏲️ Where to keep savings for short-term goals in a recession

Certificate of deposit

If you're saving for a goal in the near future -- like buying a car or paying for home repairs -- a certificate of deposit is a smart option. Unlike savings accounts, which have variable rates, CDs offer a fixed rate that's locked in when you open the account. That means your earnings will never drop and your returns are guaranteed, regardless of what's happening in the economy.

You must keep your money in the CD for the full term to avoid early withdrawal penalties. But with terms ranging from a few months to several years, it's easy to find a CD that fits your timeline. In fact, the early withdrawal fee can discourage you from tapping into your funds before you really need them.

🗓️ Where to keep savings for long-term goals in a recession

It depends

The best place for long-term savings goals depends on the goal. Retirement savings are best in tax-advantaged retirement accounts (more on that below) but you have plenty of options for other goals.

For example, if you're saving for your child's college fund, consider a 529 plan. These state-sponsored savings plans allow relatives and other individuals to put aside money for a child's education and come with tax benefits like tax-free withdrawals if the money is used for educational expenses. 

You could also consider a low-risk government-backed investment like an I bond, which can preserve your purchasing power in the face of inflation.

If you're saving for a down payment on a house, consider the pros and cons of accounts like homebuyer savings accounts, high-yield savings accounts and CDs.

🧑‍🦳 Where to keep your retirement savings in a recession

Tax-advantaged retirement funds

Retirement accounts like 401(k)s and IRAs are designed to help you maximize your tax advantages. Depending on the account you choose, you'll either pay taxes now or when you withdraw the funds, allowing you to account for a potentially lower income in retirement. 

If your employer offers contribution matching on a retirement savings plan, it's essentially free money to boost your nest egg.

While brief stock market swings can cause panic, investing is still critical for long-term financial stability. The S&P 500 has historically delivered an annual return of about 10% for investors who stick it out over decades. Instead of trying to beat the market, focus more on your ideal investing strategy. A robo-advisor can help.

If you're nearing retirement age, you may want to rebalance and diversify your portfolio so more of your retirement fund is in low-risk assets like bonds.

Kelly is an editor for CNET Money covering banking. She has over 10 years of experience in personal finance and previously wrote for CBS MoneyWatch covering banking, investing, insurance and home equity products. She is passionate about arming consumers with the tools they need to take control of their financial lives. In her free time, she enjoys binging podcasts, scouring thrift stores for unique home décor and spoiling the heck out of her dogs.