Recession alarm bells are ringing: 5 smart savings strategies to prepare

Recession predictions, financial markets and tariffs have been on a rollercoaster ride lately. 

Escalating trade tensions with China and worsening consumer sentiment have made for a turbulent and uncertain start to 2025. 

While in March, President Donald Trump said he doesn’t see a U.S. recession on the horizon, according to Bloomberg, financial experts are increasingly cautious. Bankrate’s latest Economic Indicator Poll found the odds of the U.S. economy entering a recession by next March have risen to 36 percent.

One thing is clear: inflation is still elevated, says Greg McBride, CFA, Bankrate chief financial analyst, even though it’s significantly lower than it was a couple of years ago. “It’s improved, but it’s still elevated relative to the target of 2 percent,” McBride says.

Rather than panic, it’s good to be prepared for a recession, which will inevitably happen at some point as recessions are cyclical. 

It’s still a great time for savers

Though you’re unlikely to earn a yield of 5 percent APY or higher on a savings account at a Federal Deposit Insurance Corp. (FDIC) bank, savers are actually in a better environment right now than when the top yield was a little more than 5 percent APY almost two years ago.

“I like (5 percent) a lot better when inflation is well below 5 percent,” McBride says. Back in March 2023, the top savings yield that Bankrate tracks was 5.02 percent APY. But inflation was 5 percent, so the real rate of return — the amount you’re outpacing inflation — was only 2 basis points.

“Loss of buying power is as damaging as a loss of principal,” McBride says.

In March 2025, 4.55 percent APY was the highest-yielding savings account that Bankrate tracked and inflation was 2.4 percent. So that top yield was outpacing inflation by 215 basis points.

Inflation has decreased faster — and more — than savings APYs during the past couple of years. 

“Rates while not at the highest level in the past few years, they’re still above what anyone has seen for the past several years,” says Joe Bartolotta, senior vice president at Salem Five Bank in Salem, Massachusetts. “And that’s certainly good news for people who are savers. Particularly older Americans who are looking for a safe investment and a fair yield on those deposits.”

Here are smart savings strategies that you can use during times of uncertainty. 

5 smart steps to take with your money before a recession

1. Secure your emergency fund

Building — or adding to — an emergency fund is easier to do when things are good, not when you experience a job loss or an inevitable emergency happens. 

“Nothing helps you sleep better at night than knowing you’ve got some money tucked away,” McBride says.

The primary reasons to have money in a savings account are safety and liquidity, McBride says.

“Return takes a backseat to safety and liquidity,” McBride says. “But you still want to earn the most competitive return you can. You can’t compromise your safety and liquidity needs to chase returns in higher-risk investments.”

One way you can start or add to your emergency fund is to split your direct deposit of your paycheck, sending part of it into a high-yield savings account and the rest into a checking account to pay bills and other everyday expenses. 

2. Reduce your high-interest debt

Reducing your high-interest debt is also something to do when things are good — before a recession. Focus on variable-rate loans, especially credit cards with variable interest rates.

According to Bankrate’s 2025 Credit Card Debt survey, 48% of credit cardholders carry debt from month to month. Those balances become significantly more burdensome during periods of income disruption that often come with recessions.

Consider these debt elimination strategies:

• Debt avalanche method: Focus on highest-interest debt first.
• Debt consolidation: Consider a fixed-rate personal loan to simplify and potentially reduce interest costs.
• Balance transfer: If your credit score is strong, explore 0 percent APR balance transfer offers.
• Accelerated payment plan: Allocate any extra funds to debt reduction now, while your income is more stable.

3. Stay vigilant about your APY

Don’t rely on your bank to tell you when it lowers your APY. Proactively check your monthly statement — or your bank’s website or app — on a monthly basis and compare your yield with top-savings yields to make sure it’s still competitive.

Depositors realize they have the power with the deposits because banks need deposits, says Nicole Lorch, president and chief operating officer at First Internet Bank.

“Right now, it’s a seller’s market for deposits,” Lorch says. “And they’re realizing they can go anywhere with their deposits — they don’t have to just use the bank down the street.”

But a rate decrease, or a yield that’s a few basis points away from another top bank, isn’t necessarily a reason to switch banks — unless there are other reasons you’d like to change.

4. Consider different savings vehicles based on your timeline

If you opened a certificate of deposit (CDs) a few years ago when rates were at their peak, your CDs might be maturing now in a lower-rate environment. If that’s the case for you, think about the purpose of the money before deciding whether it should go into a new CD, a high-yield savings account or be invested.

With potential rate cuts on the horizon, a CD or CD ladder could make sense — depending on what your money is being earmarked for. Even with the Fed’s forecast, no one knows what will happen this year in the economy and with rates.

If you’re toward the end of a savings goal — a year away from retirement, or you’ve accumulated enough savings for a wedding later this year — you might want to consider putting your money in an FDIC-insured savings account or money market account if you’ll need access to it soon. If you won’t need access for a little while, consider a CD.

Make sure your balance is within FDIC insurance limits and guidelines. Money in securities could earn more than an FDIC-insured deposit product, but it could also lose value at a time when you’re close to your savings finish line.

5. Strengthen your overall financial position

Beyond savings and investment strategies, consider these tips:

• Review and reduce unnecessary expenses: Making a budget can help you understand what you’re spending your money on and can help you find saving opportunities.
• Consider secondary income sources: Another job can help you earn more and help you if you lose one of your jobs.
• Delay major optional purchases: Now might be the time, if possible, to wait on purchases that aren’t necessary. Saving that money now might help you down the road with the current economic uncertainty.  
• Invest in marketable skills: This investment in yourself can help you in a highly competitive job market that has a high unemployment rate. 

Understanding the current economic landscape

While we wait and see where the economy goes, it’s good to understand the current economic landscape and how recessions are defined. A recession is defined as two consecutive quarters of negative GDP growth. However, economists often look at a broader set of indicators when assessing recession risk.

Economists closely follow several key indicators: 

1. The yield curve: An inverted yield curve occurs when short-term yields are higher than longer-term yields.
2. Unemployment trends: High or rising unemployment can mean that the economy is weakening. 
3. Consumer sentiment: Declining sentiment can be a sign that consumers either don’t have money to spend or are choosing to cutback on spending. 
4. Business investment: Are businesses investing in research and development or making capital investments in equipment or production? 

In the first quarter of 2025, the U.S. did log negative GDP growth — the economy shrank by 0.3 percent. And in April, consumer sentiment continued its downward trend, according to the University of Michigan consumer sentiment index. But while economists (and the general public) are in a wait-and-see moment, this adage stands: Preparation beats panic.

Bottom line

Now’s the time to plan for the next inevitable recession. To avoid scrambling when things take a downturn, work to build up your emergency fund now. Use a budget to find saving opportunities and make sure your money is in an FDIC-insured bank.