This article is reprinted by permission from NerdWallet. With a notable number of high-profile company layoffs and a lower rate of inflation, you may be wondering whether you might feel the effects of a recession in the U.S. economy in 2023 and what you can do to protect your money if there is one.
Recessions are marked by a prolonged economic downturn, which is often defined as two quarters in a row when the U.S. has negative economic growth. This happened in 2022, but experts seem to disagree on whether the U.S. is experiencing the full effects of a recession, where inflation decreases, consumers spend less money and some businesses lay off employees to stay afloat. If you’re worried about the impact that a recession could have on your savings, here are some things to consider. How does a recession affect my savings? The good news is that since the rate of inflation slows during a recession, the value of your money either stays the same or slightly increases, which means your purchasing power improves. For your savings, that means the value of your cash is greater than when there’s high inflation. On the other hand, when inflation slows, the Federal Reserve typically responds by decreasing interest rates, which typically increases consumer spending since it becomes cheaper to finance purchases. Unfortunately, however, interest rates on bank accounts also usually decrease when this happens, so you begin to earn less interest on your money. See: As prices rise, here are some ways to lower your food billHow an emergency fund can help Emergency savings are good to have no matter what is going on in the economy because unexpected expenses — such as a car repair …