Note: This article is part of our Basic Banking series, designed to provide new savers with the key skills to save smarter.
Cash is king, the saying goes. But is keeping cash at home really necessary?
According to a 2018 Pew Research study, Americans are relying less on cash to fund their lifestyle, with 29 percent of participants not using any cash to make their typical weekly purchases.
Even if you’re one of the people who don’t use cash regularly, it’s important to consider that keeping cash at home gives you flexibility to respond to emergency situations, especially when ATMs and electronic payments may not be functioning.
The key is to avoid keeping too much money on hand, said Ken Tumin, founder and editor of DepositAccounts, a subsidiary of LendingTree. So, before you go hiding a large chunk of change under your mattress (THE worst place possible), you need to know the risks and make a plan.
The risks of keeping cash at home
While having some money at home can be helpful, there are risks to keep in mind. According to the Federal Bureau of Investigation (FBI), there were over 1.4 million burglaries in 2017, with more than two-thirds occurring at residential properties. The average loss per incident was over $2,400. Unfortunately, if your cash is stolen during a break-in, it’s unlikely you’ll get it back.
Additionally, your money could be destroyed in a fire or natural disaster. But even if you never lose a single dollar to fire or a burglary, cash kept at home will lose purchasing power over time due to inflation.
How much cash you should you be keeping at home?
Even though each person’s needs vary, it’s a good idea to have adequate funds available to cover major emergency scenarios. Furthermore, noted Tumin, “it’s wise to have enough cash to last during periods when many places may lack electricity that would prevent ATMs from working.”
Gabe Turner, Director of Content for Security Baron, a home security and cybersecurity consumer education website, encourages you to factor in your family size and location when determining how much cash to keep around. For security reasons, he recommends stashing no more than $1,000 in your home.
Remember, at the end of the day, keeping the money in your house is meant to relieve your anxiety — not increase it. You should keep an amount at home that would make you confident in an emergency situation, but not so much that you’re constantly worrying about it.
Best places for keeping cash at home
First and foremost, it’s a good idea to have a home security system in place so that police can be alerted in the event of a burglary, said Bob Tucker, PR Director from the Boca Raton, Fla.- based security company ADT. From there, Tucker said that robbers typically target the kitchen and master bedroom, so you may be better off hiding your cash in other areas of the house like the bathroom or laundry room.
When choosing a hiding spot, be sure that it’s unique, yet accessible. You don’t want a burglar to be able to easily deduce where your money is located, but you need to remember where you put it. Tumin warned, “there is probably more risk of you losing your money if you’re too clever in the hiding areas.” Additionally, if you should pass away, your heirs may not be able to find your cash if it’s stashed a little too well.
Tumin recommends storing cash and other valuable items in a fireproof safe. If you go that route, Turner noted that safes should be bolted to the floor, extremely heavy, and tied into your home security system. That way, if someone tampers with the safe, your monitoring service can immediately alert the authorities.
If you’d like to go a little more unconventional, here are several non-obvious places to keep your emergency cash stash:
- False pipes, air vents, or outlets
- Table legs
- Curtain rods
- Watertight container on the back of the toilet
- Empty medicine bottle in the bathroom
- Plastic bag in the freezer
- Envelopes taped to bottoms of cabinets, drawers, or boxes
Turner offered one last idea: “Leave some money out for thieves to see and steal, like $50 or $100. They’ll think that that’s all of the money in the house, and probably won’t go looking around for more.”
What to do with excess cash
While having some money on hand can be helpful, most of your cash should be stored at the bank, said Tumin. However, consumer confidence in the banking system is waning. If you’re in the half of the American population that’s experiencing reduced trust in banks, be assured that your funds are protected by the Federal Deposit Insurance Corporation (FDIC). The FDIC is an independent government agency that automatically protects up to $250,000 of your money in the event of bank failure as long as your account is held at an insured institution.
“If you’re worried about losing access to your bank account due to fraud or some other issue at the bank,” said Tumin, “it makes sense to open an additional account at another bank or credit union that can be used as a backup in case anything happens at your primary bank. That would provide more safety than keeping a large amount of cash at home.”
In addition to being safer, your money has the potential to compound in a bank account. While the interest rates on traditional savings accounts are pretty low, they’re better than the zero return your home-based cash stash will earn.
The final word
Having money on hand can help you more nimbly respond to unplanned events and emergency situations. However, any cash beyond what’s necessary to maintain a basic safety net should live safely in your bank account, where it’s protected and has the opportunity to grow.