How Much Cash Should You Keep at Home?

Quick Answer

It’s a good idea to keep a small sum of cash at home in case of an emergency. However, the bulk of your savings is better off in a savings account because of the deposit protections and interest-earning opportunities that financial institutions offer.

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Most transactions today can be handled with your digital wallet or debit or credit card—but cash still serves a purpose. If a disaster happens and card payment options aren't available, cash could be the only way to pay, and that's an event to prepare for.

It's a good idea to keep a cash reserve at home for emergencies, but keep the amount to a small sum so you don't miss out on the safeguards and earning potential that bank accounts and investment accounts provide. Here are reasons to have cash at home and factors to consider when deciding how much to stash.

Reasons to Keep Some Cash at Home

Keeping cash at home is a precautionary measure that can help ensure your family has money to fall back on if there's a natural disaster or other emergency and you can't get to an ATM. While your home isn't a place to store all of your savings, cash set aside with survival supplies like extra water, flashlights, first-aid kits and canned food should be part of your emergency plan.

How Much Cash Should You Keep at Home?

Ready.gov recommends you keep a small sum at home and the rest of your savings in an emergency savings account. Exactly how much to stash at home comes down to your family size and your daily expenses. A single person could need several hundred dollars, but a family of four could need more to cover food, gas and transportation costs during a crisis.

What Are the Risks of Keeping Cash at Home?

While it's a good idea to keep some cash at the house, certain drawbacks make it riskier than keeping money in a bank or investment account. Here's what you need to know:

Stolen Cash Is Hard to Recover

The danger of keeping a large Depression-era-esque cash stockpile in your house is that it could make you a target for theft, and if someone steals from you, the odds are low that it will be replaced. FBI data shows that just 2.6% of the $1.4 billion in currency and notes reported stolen in 2019 was recovered.

Meanwhile, bank accounts offer some protection against theft. If someone steals your money by making unauthorized bank account transactions, you're only liable for part of the stolen funds (if any) as long as the fraud is reported immediately. Setting up account alerts can help you track account activity, so you can report fishy transactions right away to minimize loss.

Additionally, banks and credit unions backed by the Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA) offer deposit insurance that guarantees up to $250,000 per depositor, per account ownership type if a financial institution collapses. So, if you're concerned about your money disappearing during economic turmoil, the government has put measures in place to protect your assets.

Money at Home Won't Earn Interest

Besides the possibility of theft, you risk missing out on account earnings when money sits in the back of a closet. Cash in a savings account can earn interest, while money invested in the market could earn an even greater return that keeps up with inflation.

Let's say instead of storing $5,000 in excess cash at your house, you invest it and see an annual return of 6%. After 10 years, $5,000 would turn into $8,954.24. During those 10 years, chances are the cost of goods and services also increased, and the account earnings will help your money go further when you need it. The risk of keeping large sums at home and not earning a return is that your purchasing power will decrease over time as inflation rises.

Cash Can Deteriorate

Keeping money at home is also risky because it can get damaged. Cash is stronger than, say, printer paper, but it can still rip, rot and mold. This could be a real concern if you live in an area prone to flooding or high humidity.

Where Should You Keep Your Money?

A safe or lockbox is a good place to put cash at home for disasters and other emergencies. However, money for everyday bills is probably safer in a bank account. High-yield savings accounts or certificates of deposit (CD) are good places to park emergency savings and other money you're socking away for a big-ticket item or event.

For retirement savings, 401(k)s and IRAs offer tax advantages and investment options that could provide a higher long-term return than bank accounts. Taxable brokerage accounts are investment accounts that don't offer the same tax advantages, but they also come with fewer rules than 401(k)s and IRAs. For example, you have the flexibility to contribute as much as you want each year to a taxable account.

Other Ways to Prepare for Emergencies

A world without card transactions and digital payment systems might seem unimaginable, but disasters can affect networks or other infrastructure, and having some cash set aside could give you peace of mind. For emergency preparedness, Ready.gov outlines other supplies to store, like water, food, a battery-powered radio, a first-aid kit, manual can openers and more.

Other ways to prepare financially for a disaster could be growing your savings account balance and building credit in case you need to borrow money during an emergency. With Experian CreditWorksTM, you can review your credit health and devise a plan to grow your score.

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