How Much Cash Should You Keep At Home?

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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.

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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.

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 circumstances 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.