Should we stockpile cash at home?

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Digital payment platforms like Venmo, PayPal and CashApp have changed the way we use and keep physical cash on hand. Most people rarely keep cash on their person, much less at home. However, there are always unexpected events that can lead to a necessity for having a bit of cash on hand, particularly emergencies ranging from catastrophic weather (hurricanes, wildfire), to power outages. If you can’t access your digital currency or your banking systems are down, having cash can allow you to get gas, food, and medicines with ease.

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However, just how much cash should you have on hand? We asked experts to weigh in and the answer is: It depends.

Keep Cash to a Minimum

From a security point of view, cash is the most insecure asset you can have. Keeping it to a minimum in the house in the case of fire or theft is a good rule of thumb, said Ryan McCarty, CFP from McCarty Money Matters. Just how minimum is up for debate among financial experts. Danielle Miura, CFP, the founder and owner of Spark Financials, suggested, “You should keep enough money on hand to get you a couple of gallons of gas, pay for a delivery tip, or to help in unfortunate events,” or around $100-$200 at a time. “Emergency funds should not be held at your home, they should be stored in a high-yield savings account of your choice.” McCarty framed it more in terms of a ratio: “In terms of amount, don’t let your cash exceed 10% of your overall emergency fund and/or $10,000. You can’t deposit more than $10,000 in cash in a given year without raising red flags with the IRS.”

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Enough for Emergency Expenses

Yasmin Purnell, a personal finance expert and founder of The Wallet Moth, a finance website, suggested you keep enough cash on hand in case of an emergency that would require you to access “temporary accommodation, food and drink, gasoline, and medication.” Purnell added, “As a general rule of thumb, having access to $1,000 in cash at home would ensure you can at least pay for immediate expenses in the case of a national emergency.”

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Ted Capwell, an investment manager and co-founder of Safe Trade Binary Options, a financial news website, suggests that instead of keeping cash for this kind of emergency, you could keep staples. “For example, instead of keeping $500 for food, buy frozen food and store them in a refrigerator. Or buy an emergency kit instead of keeping money for hospital bills.” “You don’t need to stash hundreds of thousands of dollars because that’s just over-preparing for a catastrophe that has a really low chance of taking place,” Capwell said.

Less Than $1,000

“It depends person to person, but an amount less than $1000 is almost always preferred. There simply isn’t enough good reason to keep large amounts of liquid cash lying around the house. Banks are infinitely safer.” To drive home this point, he shared that neighbors of his parents wound up badly burned in a house fire because they were trying to find their hidden stockpiles of cash. “This is an extreme example, but the point stands,” Cramer said. “In today’s world of ubiquitous credit cards, Apple pay, Paypal, Venmo, etc., there aren’t enough good reasons to keep large amounts of cash in the house.”

Keep Your Cash Safe

No matter how much cash you keep at home, you’ll want to keep it safe, said Matthew Dailly, managing director at Tiger Financial. “To begin with, you’ll need to locate safe havens for it…The loss of a large amount of cash can happen in a matter of seconds if your home is damaged by a flood or fire. Fireproof safe storage is, therefore, a good idea. In addition, you’ll serve as a lure for would-be burglars…Even if you purchase a high-tech safe, a criminal may still attempt to break into your home.” For security purposes, this money should be kept in a bolted down safe with any other valuables in the home, McCarty said. “Make sure the safe is fire and waterproof to avoid any damage. Make sure you deposit and replace the money on occasion so that the bills don’t get too old.” Jay Zigmont, PhD, CFP®, founder of Childfree Wealth, a life and financial planning firm based in Mississippi, offers another word of caution: “Having money on hand, of course comes with the threat of theft or loss, but also, it may be a challenge for you to not spend it. I’ve heard of people freezing the money–literally–to slow them down, giving their spouse or child the key to the safe or other things to slow themselves down. Figure out a balance that works for you.”

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Don’t Panic

When things get bad, people have a tendency to panic, and taking out a lot of cash to protect against emergencies can actually work against you. Contrary to popular belief, you are already protected from a bank failure, Dailly said. If a bank goes under, the standard FDIC insurance is $250,000 per depositor, per insured bank, for each account. “To avoid a total collapse of the entire financial system at once, you can simply divide your fortune among several banks.”

Cash Loses Value

A good rule of thumb is to keep as little as you think is necessary; while it might seem weird, cash actually loses value over time. “Unlike money in circulation, which loses value over time, money in a bank retains its worth and, on occasion, even climbs in value. A safe financial institution is the only way to ensure the safety of your money,” Dailly said.