Where to set aside money for later during a recession

Where would you suggest putting money during the current recession – savings account, TFSA, investments, crypto?

I’d definitely avoid putting money into cryptocurrency, especially right now as virtually all cryptocurrencies are tanking at a rapid rate. At its best points over the last decade, cryptocurrencies have been high-risk/high-reward situations where you might become a millionaire, or you might lose everything when an exchange gets hacked or your hard drive crashes and loses your password. In the past decade a small number of people have done really well betting on cryptocurrencies, but it’s a risky approach with no security, insurance, or regulation. Most people lose out when their preferred currency crashes, they lose their password, or the exchange they were using tanks. Cryptocurrencies are interesting, for any number of technical or philosophical reasons, but they are not a reliable way to make money.

As to where I do think it makes sense to put money right now, my answer depends on when you think you’ll want to use the money you are setting aside now.

In cases where you want to cash out, ideally with all the money you put aside, in three years or less, then I’d recommend a high interest savings account (HISA). A HISA will not make much money, maybe a percentage or two per year, but the amount you deposit will still be there when you want it. This is a very low risk, low reward approach. You won’t make much money, but you will not lose any money.

If you are looking at a time range of three to five years then I’d suggest something like a guaranteed investment certificate (GIC) or a term deposit, which is a similar type of guaranteed investment. These are investment tools where you put an amount of money into an account and the idea is you can’t get it back until the term is completed. However, when the term is over you are guaranteed to get it all back, plus a small amount of interest. The interest rate is usually in the range of 2% to 5% per year and terms last from one to five years, typically. This is a good way to make sure you don’t lose any money, while also getting a small return. It may not keep up with inflation at the moment, but it’ll be close. This approach is also low risk for a relatively low reward.

Assuming you can wait more than five years before you want to cash out, then your best option is probably investments, like mutual funds, in a tax free savings account (TFSA). In periods of time over five years, investments in the stock market using mutual funds and similar options tend to make money and at a higher rate than GICs. The average return is around 7% per year and, with a TFSA, you don’t pay taxes on the money you make while it is invested.

Using a TFSA is slightly more risky than the previous options we talked about, it’s not guaranteed, but it performs better on a longer time line. If you are looking to set money aside for anywhere from five to thirty years, then a TFSA invested in stable stocks or mutual funds is a good way to go.