How Much Cash Should You Keep At Home?

Image by Getty Images; Illustration by Bankrate

How much money you keep at home depends on your personal situation, including your need for cash in everyday life as well as in an emergency situation. Some experts recommend keeping a minimal amount of cash on hand, since a federally-insured bank account would be a safer option.

Why people keep cash at home

Despite the ease of depositing money in a bank account and the assurance of Federal Deposit Insurance Corp. (FDIC) protection, many people still keep a portion of their funds in physical cash. Some reasons for this 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.
• Unable to open a bank account: If a person has been denied a bank account, they may choose to keep more cash at home.
• Run a small cash-based business: Some small business owners may require having more cash around.
• Cash-stuffing: Stuffing cash away in envelopes (also called envelope budgeting) gained popularity as a way to pay for monthly expenses over debit or credit cards.

Keep enough cash for emergency expenses

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 in your area and whether you want to include other expenses in cash.

However, Pepper says that it might be wise to keep those staples on hand instead of keeping cash to buy them. So, for example, rather than keeping money at home for groceries, you can purchase extra canned, non-perishable food with a long shelf life.

Reasons to Limit Cash Kept at Home

Keeping no more than $1,000 in cash at home is recommended by some experts because large amounts of cash can be lost, stolen or damaged. In addition, cash in your home doesn’t have the same protections as funds in a bank account.

Homeowners’ or renters’ insurance typically only covers about $200. On the other hand, money kept in a bank is insured up to $250,000 per ownership category, per insured bank and per account holder by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA).

Another drawback is that cash kept at home doesn’t earn interest, so you’ll miss out on potential growth. Also, having large amounts of cash at home can make it tempting to engage in impulse spending. 

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 in knowing that your deposits will be protected and reimbursed up to $250,000 if the bank fails. The FDIC-insured bank is insured up to $250,000 per ownership category, per insured bank and per account holder. For NCUA-insured credit unions, insurance is provided by the NCUA. If, however, someone steals your cash, or you lose it, it’s gone.
• It’s easier for money to be lost, stolen or destroyed: Unlike money you deposit in a bank, your cash at home can be stolen, misplaced or destroyed in a fire or natural disaster.
• Some places won’t accept it: During the COVID-19 pandemic, many merchants shifted to cashless and contactless transactions, and some continue not to accept cash to this day.
• 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 at home, 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.
• It’s harder to track your money: Placing money in a bank account allows you to keep track of how much money is going into and out of your account. If you keep all of your money at home, it’s tougher to keep track. 

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 checking account, consider opening another account at a different FDIC-insured bank or NCUA-insured 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 if you’re only 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.
• Load funds onto a prepaid card: Rather than keeping cash in physical bills, you can load a small amount onto a prepaid debit card to make sure you have cash available in an emergency. Federal law does provide some possible protection for those funds if you have registered your prepaid card and someone steals the number, depending on the card. However, you have to report the issue immediately. Additionally, some prepaid cards may charge you a fee to replace a lost or stolen card or other fees.
• Consider a second-chance bank account: If your reasoning for having cash at home is because you have been denied a bank account, consider opening a second-chance account. A second-chance checking account is designed for those whose banking history may prevent them from opening a standard account.

Bottom line

Whether to keep cash at home is a personal choice 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.