3 ways to protect your money if the U.S. defaults on its debt (2024)

FAQs

What is the safest place for money if the government defaults? ›

Money market accounts are worth considering as well; they're FDIC-insured, and combine features of checking and savings accounts. U.S. government securities—such as Treasury notes, bills, and bonds—have historically been considered extremely safe because the U.S. government has never defaulted on its debt.

That means tamping down on excess spending, making a budget, and shoring up emergency savings to cover at least three months of living expenses. Since a debt default would likely send interest rates soaring, any credit card debt you're saddled with may soon cost you more.

The dollar is a global reserve currency and U.S. bonds are seen as one of the most stable investments on the planet. So if the U.S. cannot pay its creditors, interest rates on U.S. debt would go up, creating a cascade of higher interest rates. So mortgage rates, credit card rates, car loan rates.

Gold: The Traditional Safe Haven

“If the debt ceiling is not raised and the government defaults on its debt obligations, investors may turn to gold and other precious metals to protect their wealth.”

While no one knows precisely what a default would entail, consumers can rest assured that their Treasuries and certificates of deposit are reasonably safe.

Banks during recessions FAQs

Your money is safe in a bank, even during an economic decline like a recession. Up to $250,000 per depositor, per account ownership category, is protected by the FDIC or NCUA at a federally insured financial institution.

Though trust funds are in place to support Social Security payments to recipients in the event of a debt default, they could be depleted if the United States enters into a debt default.

If the security accounts for 0.5 percent or more of the fund's portfolio, the fund also must report the default to the SEC. In addition, the US government's failure to pay its obligations could trigger a severe downgrade of its short-term credit rating by NRSROs.

Stocks, corporate debt and the value of the dollar would probably plummet. Volatility could be extreme, not just in the United States but across the world. In 2011, around when lawmakers struck a last-minute deal to avoid breaching the debt limit, the S&P 500 fell 17 percent in just over two weeks.

Banks lose money on defaults in two ways. First, they lose all future interest payments that would have been made on the loan. Technically, this isn't "revenue" until the interest is calculated for each month and "accrues" on the loan; therefore, it doesn't show on the balance sheet one way or the other.

Are T bills safe if the government defaults? ›

Yes. Treasury can roll over maturing coupon securities on the maturity date without affecting its outstanding debt or remaining cash balance as long as it makes the coupon payment due on the same day, according to JPMorgan. Treasury bills are more complicated as they are sold at a discount and then repaid at par.

After a default, what a bondholder receives, and when they receive it, is unknown in advance. An investor may attempt to sell a defaulted bond in the secondary market or hold it through the bankruptcy process, but the proceeds would likely be far less than the bond's original value.

"Gold is typically a stable asset that holds its worth over time. The precious metal is often not affected by inflation or fluctuations in currency values, making it a go-to option for investors looking to safeguard their assets. If the United States defaults on its debt, gold may prove to be a wise investment choice."

A U.S. default could downgrade the country's credit rating, which means an increase in risk. With the increased risk, there would be increased interest rates. Since debt ceiling talks came into focus this month, the yield on the US 10 Year Treasury, which is the mortgage benchmark, has gone up from 3.31% to 3.74%.

Unlike the rapidly dwindling balance in your brokerage account, cash will still be in your pocket or in your bank account in the morning. However, while moving to cash might feel good mentally and help you avoid short-term stock market volatility, it is unlikely to be a wise move over the long term.

1. Federal Bonds. The U.S. Treasury and Federal Reserve (Fed) would be more than happy to take your funds and issue you securities in return. A U.S. government bond still qualifies in most textbooks as a risk-free security.

Even if the Treasury does default, money market fund experts point to several reasons why a repeat of the Reserve Primary Fund debacle is extremely unlikely. A U.S. debt default would affect only a small number of Treasury securities, namely those that mature on the date that the Treasury's cash runs out.

If you're wondering where to put your money in a recession, consider a high-yield savings account, money market account, CD or bonds. They can provide safe places to store some of your savings. It's worth noting that a recession doesn't mean you should pull all your money out of the stock market.