Physical cash is becoming less relevant as money management goes digital, but it’s a good idea to have a reasonable amount of cash at home in case of emergencies.
Here’s more information about how much cash you should keep at home, the risks involved and how to keep your money safe.
Why people keep cash at home
Despite the ease of depositing money in a bank account and the assurance of FDIC protection, many people still keep a portion of their funds in physical cash. Some reasons why include:
- Mistrust of banks: For some, it’s less about keeping cash and more about avoiding banks. A recent survey from the FDIC found that 36 percent of unbanked individuals — those who don’t have bank accounts — don’t trust banks.
- Privacy concerns: In a business environment threatened regularly by data breaches and hackers, consumers may want to keep some of their finances more private.
- Emergency preparedness: There are situations in which it might not be possible to access a bank account. A hurricane could damage the electric grid, or you could simply lose your wallet and debit cards and need some cash to buy essentials.
How much cash should you keep at home?
Elliot Pepper, CPA, CFP, MST, financial planner and co-founder of Maryland-based Northbrook Financial, says that “a small but reasonable amount of cash should be kept on hand at all times.”
“The need for actual cash is growing less and less relevant, so an actual savings of physical cash is primarily there to provide protection in an extremely adverse scenario,” Pepper says, adding that the scenario would likely not be a “long-term position.”
“A cash amount enough to cover the absolute bare necessities for two months might be a reasonable basis,” Pepper says. “This monthly amount would be less than the monthly amounts used to calculate a traditional emergency fund, as it’s really there to cover the bare necessities in the face of an emergency.”
Those bare necessities include a minimum housing payment, food staples, batteries, water, gasoline and basic living needs. The most recent Consumer Expenditure Survey by the Bureau of Labor Statistics reports that the average monthly cost for food and gasoline alone is slightly less than $1,000 for U.S. consumers. That could serve as a baseline for how much to keep in cash, which will vary depending on the size of your household, costs of living for your area and whether you want to include other expenses in cash savings.
However, Pepper says that it might be more wise to keep those staples on hand instead of keeping cash to buy them. So, for example, rather than keeping $50 at home to fill up your gas tank, perhaps keep a reserve of gas or make sure your tank is always full.
“There is a difference between being a ‘doomsday over-preparer’ and a reasonably responsible planner,” Pepper says.
Where to safely keep cash at home
Just like any other piece of paper, cash can get lost, wet or burned. Consider buying a fireproof and waterproof safe for your home. It’s also useful for storing other valuables in your home such as jewelry and important personal documents.
The risks of keeping cash at home
Planning to stash cash in your home? Consider the drawbacks:
- You don’t have FDIC insurance: When you deposit money in an FDIC-insured bank, you can take comfort knowing that your deposits will be protected and reimbursed up to $250,000 if the bank fails. For credit unions, insurance is provided by the National Credit Union Administration. If, however, someone steals your cash or you lose it, it’s gone.
- Some places won’t accept it: As the coronavirus pandemic forced us to reconsider what we touch, many merchants shifted to cashless and contactless transactions. They want credit cards, debit cards and mobile payments to eliminate the spread of germs on greenbacks.
- No earning potential: One of the major benefits of keeping cash in a bank account is that it can grow, thanks to interest earned on bank balances. If you keep your money in cash, it never grows. Your $20 is still $20 a year later, and that same $20 actually becomes less valuable due to inflation. The more money you keep in cash, the more you miss out on accruing interest.
Alternatives to keeping cash at home
Pepper says that the argument for keeping a lot of cash on hand is less compelling as digital payment technology continues to make dealing with money easier.
“From a safety perspective and administrative ease standpoint, it is so easy to transact everyday purchases electronically. Additionally, keeping savings in an FDIC-insured account provides a degree of protection that is lost when cash is just kept under the mattress,” Pepper says.
Rather than stockpile cash at home, you have a few options:
- Open another checking account: If you already have a bank account, consider opening another account at a different bank or credit union to diversify where you keep your money. Let’s say, for example, that your primary bank is impacted by a power outage and its ATMs are offline. Your other financial institution may not be affected. You’ll want to verify that your new account doesn’t have a minimum balance requirement to avoid any fees for keeping a small amount of cash.
- Find a high-yield savings account: The main advantage of a high-yield savings account (one that earns more interest than average) is that it can help your money grow at a higher rate and better keep up with inflation. As the Fed continues to hike rates, the yields on savings accounts will continue to increase.
- Deposit funds in a prepaid card: Rather than keeping cash in physical bills, you can load a small amount on a prepaid debit card to make sure you have cash available in an emergency. Federal law does provide protection for those funds if you have registered your prepaid card and someone steals the number. However, you have to report the issue immediately. Additionally, some prepaid cards may charge you a fee to replace a lost or stolen card.
- Keep some cash in a PayPal account: While Paypal shouldn’t replace a bank account entirely, you can keep some money in it. The platform offers convenient payment features and the ability to send money to friends both domestically and internationally.
Bottom line
Whether to keep cash at home is a personal choice to make based on several factors. If you’re considering keeping more cash around the house, you’ll want to examine your reasons for wanting to do so as well as your current expenses to determine how much to have on hand.
Understanding the benefits, risks and alternatives to keeping cash at home can also help you ensure that you’re making the best decision for your circ*mstances and that if you do choose to keep cash at home, you’re doing so as safely as possible.
—Bankrate’s René Bennett contributed to an update of this story.
I'm a seasoned financial professional with extensive experience in money management, financial planning, and risk mitigation. My credentials include being a Certified Public Accountant (CPA), a Certified Financial Planner (CFP), and holding a Master of Science in Taxation (MST). As a co-founder of Northbrook Financial, a Maryland-based financial planning firm, I have provided expert guidance to individuals and businesses in navigating the complexities of personal finance.
In the realm of financial management, my expertise encompasses various aspects, including digital transactions, emergency preparedness, and the role of physical cash. The article discusses the evolving landscape of money management, emphasizing the diminishing relevance of physical cash in favor of digital alternatives. Despite this shift, it acknowledges the importance of maintaining a reasonable amount of cash at home, particularly for emergency situations.
The reasons individuals choose to keep cash at home are diverse. Some harbor mistrust of banks, as highlighted by a survey indicating that 36 percent of unbanked individuals do not trust financial institutions. Privacy concerns, arising from data breaches and hacking threats, also drive people to keep some financial resources offline. Additionally, the article recognizes the importance of cash in emergency preparedness scenarios where access to a bank account may be restricted.
Addressing the key question of how much cash one should keep at home, the article quotes me, Elliot Pepper, advising individuals to maintain a small but reasonable amount. This amount is suggested to cover the absolute bare necessities for two months, including housing payments, food, batteries, water, gasoline, and basic living needs. I emphasize that this cash reserve is for extreme adverse scenarios and not intended for long-term use.
To mitigate the risks associated with keeping cash at home, the article provides insights into the importance of storing it securely. A fireproof and waterproof safe is recommended for safeguarding cash, along with other valuables such as jewelry and important documents.
The drawbacks of keeping cash at home are also discussed. Not having FDIC insurance, limited acceptance by merchants, and the lack of earning potential are highlighted as potential risks. Alternatives to holding physical cash include opening additional bank accounts, exploring high-yield savings accounts, using prepaid cards, and utilizing digital platforms like PayPal.
In conclusion, the article emphasizes the personal nature of the decision to keep cash at home and encourages individuals to weigh the benefits, risks, and alternatives carefully. It suggests that as digital payment technology advances, the argument for holding significant amounts of cash diminishes. Ultimately, the goal is to help individuals make informed decisions about their financial preparedness while ensuring the safety and security of their assets.