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What to do with your savings during the coronavirus outbreak

By Megan Leonhardt, CNBC

The markets bombed on Monday, even after the Federal Reserve took emergency measures to cut interest rates and boost the economy. Stocks continued to swing up and down on Tuesday morning.


The ongoing volatility has many Americans worrying, scrambling to find safe havens for their money and questioning whether the U.S. financial system is secure. In fact, 68% feel anxious about the impact of coronavirus COVID-19 on the financial markets, according to a recent poll of over 2,000 U.S. adults conducted by The Harris Poll on behalf of debt managing app Tally.

But financial experts warn Americans not to panic, saying that the U.S. financial system is stronger now than during the last financial crisis in 2008. You don't need to withdraw your money from your accounts to stuff under your mattress. 

Whether your savings are at a traditional brick-and-mortar bank or an online institution, if it's insured by the Federal Deposit Insurance Corporation, it's as safe as it can be. There's no need to move your savings into your checking account or cash it out completely. "If your online bank is FDIC-insured, there is no reason to move that money," says Gordon Achtermann, a financial planner and founder of Virginia-based Your Best Path Financial Planning.

The same is true if your savings are in a money market deposit account, which is a type of hybrid savings account that offers some checking features and typically has higher interest rates than a checking or savings account. These types of accounts generally are also insured by the FDIC up to the legal limit of $250,000 and sometimes even more for special kinds of accounts or ownership categories.


That's not the case, however, if you have savings in a money market mutual fund (also referred to as a money market fund). Even though the name is similar to an FDIC-insured money market account, these funds don't function the same way. Money market mutual funds are investments, not deposit accounts, and are not government-insured. These funds are typically relatively safe, but if you can't afford any losses, you may want to transfer the funds to an FDIC-insured savings account. 

Consumers should not fear a run on banks, Achtermann says. The Federal Reserve has been "extremely aggressive" in making certain there is tremendous liquidity, or available cash, in the financial markets, Achtermann adds.

Banks are also better capitalized than in they were 2008 when the government was forced to bail several out, Achtermann says. That means financial companies have the funds to continue to pay depositors and make loans. And unlike the 2008 financial crisis, the origin of the current downturn is not the financial sector. 

At first this was a supply shock due to production interruptions in China, and now what's occurring is a demand shock to the economy as Americans stay home and events are canceled, Achtermann says. Yet unlike in the 2008 housing crisis, these issues are well-understood by economic models that have been tested many times, he says. "I don't mean to say that they are not serious and that there won't be major economic fallout, but rather that a run on banks is not one of my worries," he adds. 

You should aim to have three to six months' worth of living expenses spread out in at least two savings accounts, Scott Cole, an Alabama-based financial planner, tells CNBC Make It. Keep about $1,500 in a savings account tied to your primary bank for immediate access, with the rest of your funds in a high-yield savings account. While the Federal Reserve's emergency rate cut on Sunday will likely continue to drive down interest rates on savings accounts, a high-yield online savings account will likely still net you a higher rate than the national average of 0.09% APY. 

If you need to access your savings because of an emergency, such as losing your job or needing to pay a big medical bill, first pull money from your savings account that's at the same bank as your checking account, since it may take a day or two for the money from an online high-yield savings account to be transferred into your checking account.

When you spend the emergency cash that's in an account with a brick-and-mortar bank, you can go ahead and "replenish" it with money from your high-yield savings account as needed, Cole says.

But don't pull money out of your savings simply to have extra cash on hand, Achtermann says.  "Merchants are not going to stop taking your Visa or Mastercard," he says. 

In general, you should avoid making decisions based out of fear that the economy or the financial system will collapse, Cole says. If you are concerned, talk it out with someone objective and not emotionally involved before acting out.

"The virus part of this is unique, but it is not the end of the world or the economy," Cole says. "It is going to be okay, but we have to avoid fear driving actions as best we can."

See more at CNBC

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