Should cash be part of your emergency fund?

emergency fund

When I was in college, one of my co-workers at my part-time, on-campus job gave me a funny little gift that I use to this day. What was it? It's called a “wallet fairy.” According to the note that came with my little talisman, you put it in your wallet and “you'll never be out of money when you need it.”

I can't honestly say that the “magic” has been foolproof. I believe I've mentioned on a couple of occasions the time I didn't wash my hair for a month because I couldn't afford shampoo. And I distinctly remember crying after going to the grocery store on a couple of occasions because I didn't know how I was going to pay my bills after buying food. But I guess if the magic were foolproof, this fool wouldn't have learned her lesson and started digging her way out of debt, right?

But you know what? National Preparedness Month (a.k.a. “September”) may be over, but it's always a good idea to consider your plans if an emergency occurs. And after the flash flooding we saw this year in Phoenix, I am thinking a lot more seriously about what it would be like to be out of money when I need it. I'm starting to think that it's important to keep cash readily available, but I wanted to really sort out why and how much and where. So here goes….

Should You Keep an Emergency “Cash Stash”?

To be clear, I'm not talking about keeping an extra $20 in your wallet (not that that's a bad idea). I'm talking about keeping a significant amount of cash on hand in case of emergencies — in the hundreds or thousands of dollars. Here are the pros and cons for doing so that I can think of:

  • Pro: Out of sight, out of mind. Even if you put your emergency fund in an online-only account such as Capital One 360 (formerly ING), at least it's there. You receive bank statements reminding you of its presence. Maybe it factors into your Mint net worth. Stashing actual physical money somewhere out of the way means you are less likely to think about it (and thus, be tempted to spend it) unless there's a true emergency.

  • Con: Not earning interest. If you invest your money, you are (hopefully) earning interest faster than inflation can erode the value of your cash. The “common wisdom” is that inflation is about 3 percent annually, so you should aim to beat that benchmark, taking into account things like diversification and your own risk tolerance. Even parking your cash in a savings account with their interest rates of 0.95 percent or less (based on this week's savings account rates) is better than nothing, right?

  • Pro: Peace of mind. Cash can't be garnished like a paycheck or bank account, and it isn't easily traced. For some people, having access to money that flies under the radar, so to speak, may make them feel more secure.

  • Con: If it's gone, it's gone. See above: Cash isn't easily traced. If you lose the money, it gets destroyed, you are robbed, etc., you may have very little recourse.

Related >> How Diversification Reduces Risk

Related >> Which Online High-Yield Savings Account is Best?

Are there other significant pros and cons to having cash on hand that I am missing?

How Much Should You Keep?

Assuming that you've decided keeping some amount of cash on hand is best for your particular situation, the next question becomes: How much cash, exactly, should you keep? A solid emergency fund may be three to six months' worth of expenses, but that is probably more than most people are comfortable keeping in cash. Not to mention, even at sub-one-percent interest rates, when you start getting into the thousands of dollars, you start missing out on a decent chunk of change.

The logical question to ask yourself at this point is, What emergency situations do you think would require physical cash? For example, if you live in an area that is prone to natural disasters, keeping enough cash on hand to buy food and supplies in the event that credit/debit isn't an option (due to a power outage or what have you) may be smart. It's important to be realistic, but there's no need to be paranoid.

Where Should You Keep It?

I suppose theoretically, you could keep it anywhere. However, if you want to make sure that you're the one who is actually keeping it, your main options are likely these:

  • In your home, in a diversion safe. A diversion safe is something that looks like an ordinary household item or product that actually is used to hide items of value. Diversion safes might look like books; cleaning chemicals (think a can of Ajax); cans of soda, water, or food; or even toiletries (think a can of hairspray). The pro is that diversion safes are relatively inexpensive, but most don't actually require a lock to open. So if someone does happen upon it, the gig is up. Diversion safes also tend to be relatively small, which may be a pro or a con depending on your needs.

  • In your home, in an actual safe. A real safe is usually larger and can thus accommodate more items, if you have other valuables besides cash that you'd like to protect. It may require a key or combination to open (some are even biometric!) and, unlike most diversion safes, many are fireproof/waterproof or fire/water resistant. Accordingly, they also take up more space, are difficult to hide, and may be expensive.

  • In a safe deposit box. For a rental fee, your cash, other valuables, and important documents may be stored in a bank, post office, or other institution. The fee is usually fairly minimal for most needs, and you have the reassurance that most institutions offering this service are under some form of guard 24/7. However, that does mean if you want to access the contents of your box, you must leave your house. Depending on the circumstances under which you need to access your cash, this may or may not be feasible. After all, when was the last time you went to the bank?

There may also be indirect costs when storing items at home. If you have large amounts of cash or valuables, you may need or want a robust alarm system, for example, and that may entail an up-front cost and/or a monthly subscription.

Like most aspects of personal finance, I suspect that opinions on this topic vary widely. Do you keep physical cash? Why? How much cash is too much? And how do you balance issues of accessibility with the desire to keep your money safe?

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Mr. Frugalwoods
Mr. Frugalwoods

I fall into the “Keep enough to buy supplies while the credit card networks are down” camp. We keep a couple hundred dollars in cash on hand to cover consumables like gas, ice, and propane that we might want to buy immediately after a disaster. I lived through Hurricane Hugo in NC in 1989. We lost power for over a week and cash was king for buying ice. I was only a kid, but the experience has stuck with me. We usually keep a good supply of food, medicine, and other sundries on hand simply because we normally buy in… Read more »

AZ Joe
AZ Joe

A bank officer once told me that it was illegal to keep cash in a safety deposit box. I don’t know if that is really true and if so, is a threshold amount to trigger such illegality? In that one situation, the person I was with told them it was “collectable $2 bills” (I know, but everyone has to collect something) and the bank person said OK. Of course, if you don’t tell the bank how will they know? As to an amount to keep at home, my thought is “a few hundred dollars.” More is overkill, less is not… Read more »

R Gearhardt
R Gearhardt

Or hidden inbetween the pages of an old textbook that looks boring and is on a shelf.

Prudence Debtfree
Prudence Debtfree

My fear with such a strategy would be that eventually, I’d forget where I’d put the money!

Midwest Jane
Midwest Jane

And then you or someone else will accidentally give thousands of dollars to Goodwill. It happens all the time.

Prudence Debtfree
Prudence Debtfree

Accidentally giving money to Goodwill is not the worst fate I can imagine. Still, I’ll take this as a precaution to save only a few hundred in cash at home. The rest of our emergency fund will be in an account.

Kris
Kris

That is a good idea. Reminds me of the £400 I found in a cookery book from a car boot sale recently 🙂

Gretchen
Gretchen

I don’t like to keep cash ever, but I can see the value in having really easily accessible money. We use a separate Capital One 360 savings account, so that we can instantly transfer it to our checking account and use the debit card if something were to come up. But it is sometimes really hard to say no when you know the money is there.

Prudence Debtfree
Prudence Debtfree

I have heard that many people have a hard time saving an emergency fund, and you’ve mentioned the reason: “It’s hard to say ‘no’ when you know the money is there.” We’re on Ramsey’s debt-freedom track, and we’ll have paid off all non-mortgage debt within a year or so. At that time, we’ll save up our large emergency fund. I’ll be wary of that temptation to use it for non-emergencies – just because it’s there.

Michael
Michael

I am a very recent convert but everyone should have a little money at home just in case (I’m thinking $2-300). Even though I’m in Ohio we, unexpectedly, got crushed by Superstorm Sandy–we had ice storms from the west that merged with Sandy from the east that knocked out power in some places for a week. This knocked out the ATMs/banks so even though we had an emergency fund, we couldn’t get at our money and credit cards were completely useless. Now, this also knocked out the grocery stores but they were all operating on limited generator power but it… Read more »

JoeM
JoeM

It is rather rare that I keep any significant cash on hand. I do referee hockey on the side, which almost solely pays in cash, so if I have a splurge idea in mind (e.g. weekend Chicago trip) I might leave those funds in my car instead of depositing them into my checking account. If someone is going to break in and steal my car, the $100-250 in my center console is going to be the least of my worries. However, I do have a $3,500 emergency fund with Capital360 and $1,500 (and growing) specific use Ally savings accounts. For… Read more »

Debi
Debi

Before the days of ATMs and debit cards (I’m giving away my age here) we used to keep $250-$500 on hand for quick cash. We didn’t necessarily consider it as money in the event of a natural emergency but it did come in handy on more than one Sunday when cash was needed and banks were not open. Now that you’ve brought it up I’m going to start keeping about $1,000 in our home safe.

Monica
Monica

My husband and I keep around $300 cash in small bills in our home and we call it our “cash stash”. While we have a sizable emergency fund in a savings bank (and additionally a few CDs), in a natural disaster or true emergency the last thing that may be accessible is an ATM (which may be offline or run out of funds from everyone who is trying to get $) – so I feel safe having a bit of readily available cash at our fingertips (and in a mix of smaller bills for easier negotiation).

sarah
sarah

This is a good reminder to keep cash on hand, which I never do. But, I think it’s “the jig is up”

Jen From Boston
Jen From Boston

My grandfather used to keep a few hundred in his wallet, and my mother does, too. But because I came of age during ATMs I don’t. However, now I am thinking I should. I have gone an entire week with no cash in my wallet because I can pay for most everything with my credit card, and doing so makes it easier for me to track my spending. Btw, the article was initially a little confusing – I thought you were talking only about a general emergency fund of cash savings, but then you jumped to actual cash on hand.… Read more »

Liss
Liss

From the 72 hour emergency standpoint, having a few hundred dollars on hand in cash is an excellent idea. If for some reason the banks/electronic funds are down or you can’t get to the bank, you would still be able to make do for a while. Having your entire emergency fund in cash at home? Sounds super risky to me…..

Rail
Rail

Wow. It always amazes me when we have this conversation at GRS. Like Dave Ramsey says cash is king and a truer statement has never been made. I have told the story before about the co-worker and me eating at the Mexican taco joint not having enough cash on him to buy 5 bucks worth of tacos and me having to bail him out. We were in another state by the way as we travel on the railroad. I’m 44 so I lived before cash cards and AT machines, had no C.C. and it was cash or check. I just… Read more »

El Nerdo
El Nerdo

I just don’t understand why anyone would not have real money on their person

a) Muggings by criminals, pockets picked, etc.

b) Muggings by police aka “civil asset forfeiture”. Read a highly disturbing series of articles here: http://www.washingtonpost.com/sf/investigative/2014/10/11/cash-seizures-fuel-police-spending/ (prior articles listed on right column).

I always keep some 20s in the wallet for small emergencies, but I don’t like to carry large sums… especially after reading that!

Rail
Rail

Your right Nerdo, being in a unsafe area where muggings may occur is a fact of life for many people. Maybe thats why I go heeled when I go out. First amendment anyone? And I’m not a NRA gun nut so don’t anyone get all wound up, just saying maybe I sometimes have protection on my person when I’m out on the street. 😉 And Police muggings were just talked about last week here in Iowa. Seems the State patrol now has their hand in the cookie jar. Fascism, Corpratism and Plutocracy are the enemy of the Federal Republic we… Read more »

imelda
imelda

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances.

….You asked.

Rail
Rail

That’s right Imelda I said First amendment. I didn’t say I carried a gun did I? I carry a small copy of the constitution with me some times. Its a machine that kills Fascists. I asked… you replied, and good for you to look it up. The Constitution is how sites like this can exist and we can share thoughts and ideas freely. More “law enforcement” types need to brush up on it now and then. 🙂 Cheers!

LeRainDrop
LeRainDrop

Rail, I could be wrong, but I think part of the laugh here is that you cited the First Amendment, but the right of the people to keep and bear arms is the Second Amendment!

Rail
Rail

I guess I was trying to be to be to clever. I know that the First Amendment is freedom of speech. See above posts. I know I’m not clever and wont try to be again. Mea culpa. Cheers!

Sherry
Sherry

When I got snowed in a couple of years ago and had to pay a crew to plow me out (my own tractor with a loader on the front had konked out on me) I was glad I had a couple hundred dollars in a cash stash at home. Another time when I was replenishing my stores of bottled water ahead of a hurricane, the power was out at the local grocery store and I was glad I had fifty in small bills. Along with the $50 bill I keep behind my driver’s license and the growing emergency fund in… Read more »

Rail
Rail

Sounds like prudent thinking to me. My Midwestern rural upbringing has instilled in me the idea that anything that can go wrong WILL eventually go wrong and being prepared for it is a fact of life. My Paternal grandfather was born in 1889 and the other in 1914 so they and grandmas lived the old ways. They never forgot oil lamps, coal stoves and outhouses, the Dust Bowl, Great Depression and WWI and WWII. Their thrift and distrust of large financial houses was passed down to me. Don’t mean to get off subject but it ties in with times can… Read more »

Alice
Alice

Living along the Gulf Coast and going through many hurricanes and tropical storms has taught me to always have cash available at all times. One tropical storm flooded my previous home with 4 feet of water inside so I was very glad to have cash on hand to pay for living expenses like food and shelter for my semi invalid brother and myself.

Having an emergency account is a very good thing but it’s not the same as having cash that is readily available for those unexpected life changing events.

NAncy
NAncy

I am in my 50s so I DO go to the bank every two weeks, and my husband and I rarely use a debit card, preferring credit card and cash for daily spending. We survived Hurricane Ivan 10 years ago when there was no power for a week and we lost our home as well, so we realize the need for some cash and also the risks of storing valuables at home. So while most of our emergency fund is in the bank, we keep a certain amount in various spots in our house. I think my Dad had the… Read more »

Mike
Mike

I keep $1000 under my welcome mat, 1600 PA ave.

CERB
CERB

We keep $2,000 in cash, some in larger bills, some small. Part of it is kept in a safe, part of it is hidden. I keep $40 in my car. Like a previous poster, I also believe in a back-up for a back-up. It has come in handy. Just last year, our elderly horse had a medical emergency and needed to be put down. The vet preferred cash and the body removal service demanded cash. It was an emotionally difficult experience as it was, I’m sure glad that we didn’t have to worry about money on top of it.

Emily @ Simple Cheap Mom
Emily @ Simple Cheap Mom

We keep most of our emergency fund in investments that are fairly liquid. At home we do have a few hundred dollars in physical cash. It just helps to not have to go to the bank machine if a tradesman gives a discount for cash or if you’re splitting takeout with some friends. In case of emergency where the power grid is down, we could still pay for groceries/hotels with cash.

Jess
Jess

I came into a very small sum of money after my uncle passed ($400 or so). I didn’t know what to do with it for some time, as it was given to me in cash. I ended up using some for a wedding present, bought myself some makeup, and decided to keep the rest, which happened to be in 10- and 20-dollar bills, in the envelope for a stash on hand. I haven’t decided on a “safe” place for it yet, and am considering adding some even smaller bills (although ones are SO annoying because they take up so much… Read more »

Lindsey
Lindsey

Wait, wait… so what is a wallet fairy??

Dennis Frailey
Dennis Frailey

For any way of saving emergency money there’s always a situation where it won’t work. So you have to consider the odds. More on that later. But first, the most important thing is for people to recognize that establishing your backup (i.e., emergency stashes) is a lot more important than caving in to immediate gratification. They teach this principle to emergency responders, firefighters, law enforcement officers and anyone else whose occupation might land them in danger, and the principle applies to all of us. We all spend time as children where our backup is our parents or family members, but… Read more »

Carla
Carla

Because of fear of theft and robbery, I rarely keep large amount of cash on me or at home. I do have a safe deposit box where I keep important documents, a few valuables and some cash. I know a safe deposit box has its limits in an emergency…

Laura
Laura

I live in New England, and power outages that last for days are not all that unusual an occurrence. At those times, frequently the stores are operating on generators, but only taking cash because the communication lines are down. And one time the bank opened, but their computers weren’t working, so you were limited in how much cash they would let you withdraw (since they didn’t know how much was in your account). So my husband and I keep several thousand dollars in cash at home in a safe. I feel better knowing I’ve got enough cash to carry us… Read more »

Tom@TheCoghlanTeam.com

I agree with Laura on this one. My brother lived through hurricane Sandy in New Jersey, and his one comment after a week without power (and heat) was “I wish I had kept a stash of small bills because nobody would take credit and none of the banks/ATMs were working. We could only buy things with cash.” We live in Virginia. While long power outages aren’t normally a problem, you’d only need one to realize how vulnerable you are. So keeping some small denomination cash in a safe (place) is a smart strategy in my book.

Aldo
Aldo

I keep a little bit of money in my house just in case the power goes out and I don’t have access to an ATM. After Sandy hit, here in NJ, and I found myself with $20 in my pocket, I saw how having a few hundred bucks at home might help. I don’t have much, and I’m not earning interest on that money, but at least I know that if something happens and the power goes out, I at least have some money for necessities.

Donna Freedman
Donna Freedman

I kept about $300 on hand when I lived in Seattle. Now that I live with a partner in Anchorage, we keep a smaller amount hidden for whatever issue might knock out power. A recent 6.24 earthquake here didn’t break anything but as it went on and on for 75 seconds I started thinking, “Hoo boy! Glad we have food, water and cash stored.” A few years back it was a severe windstorm that downed trees, which then downed lines. In the neighborhood where my partner lives the electricity was out for about a week. He was OK because he… Read more »

Mrs. PoP
Mrs. PoP

I keep a few twenties in random spots in case of emergencies – a couple in my bike under the seat bag in case I get stranded and need to call a cab, one in my running belt in case I need something when I’m out on a long run, and I think there’s one or two in the glove compartment of the car. Beyond that, whenever we’re in the cone of a tropical storm or hurricane, the ATM is one of our stops, just like gas and making sure we’ve got non-perishables. I usually get a couple hundred just… Read more »

Anonymous
Anonymous

Our family does have a cash stash. It’s made up of Christmas gift cash that was never deposited and I decided a couple of years ago to make it our cash emergency fund. Besides that envelope of cash there has to be at least $50 in change in various locations. Growing up, our family had some cash at home in a secret location.

The suggestion of keeping some of the cash emergency funds in large coins is a good idea if you don’t have a safe.
BTW, I go to the bank at least twice a month.

Jerome
Jerome

We keep about a 1000 scattered around the house and in our car. We once had a security issue with our bank-card and it and all our accounts were blocked. Unfortunately this happened late on a Friday afternoon just before Christmas. The issue was only solved after Sylvester. We manage to live quit comfortably and enjoy the holidays because by accident we had a decent pile of cash. Since than I believe in a cash-reserve.

Lance
Lance

We keep a couple of hundred dollars in cash at home just in case. We also keep it in very small bills because during an emergency there is a chance that most places aren’t going to be able to do much with change. We know it’s not growing, but that is not it’s designed purpose, plus it’s just not that much. It is only for an emergency and is in a secure spot and if we have to use it we know things have really gone poorly or their is a major emergency that has crippled everything.

Laura
Laura

Thanks for the post – this is a reminder that I need to add to my cash stash. My favorite stash places are inside a particular pot in the bottom of my kitchen cabinets (haven’t found a thief yet who’s going to stop and cook himself a meal), inside an emptied cereal box that’s stored with the rest of the stocked-up/bought-on-sale stuff, and inside a dresser that’s used in an out-of-the-way spot as a spiritual/religious altar. I guess having snoopy siblings who went through my stuff taught me to be really creative about hiding what I don’t want found. 🙂

Donna Freedman
Donna Freedman

Forgot to mention: One way we build the cash cache is to put $2 in a jar every time we do the laundry. Ostensibly it’s for a replacement washer one day but it also helps boost the liquid emergency fund — and at a slow, sustainable pace.

ROI @ Investment Total
ROI @ Investment Total

You have a great insight here. The recommended cash reserve for emergency funds is at least equivalent to 6 months of income. There are many people lured in investing but they haven’t built their emergency funds, chances are they will redemm their investments to sooner during emergencies.

Emergency funds is very important, life insurance is also a must.

Keep on writing tips about personal tips and some very useful articles about how to get rich slowly but surely.

May you have a successful investing journey. Prosperity to all readers of getrichslowly.org.

Marie
Marie

My wedding gift from my siblings was a very large, very heavy fire safe that they bolted into the concrete floor in my coat closet. It was a great relief to have a secure yet accessible place to keep money in the house. The only problem is that my husband is completely incapable of remembering the combination. If I die first, he’s screwed.

Carol
Carol

Do you have problems with papers getting damp and moldy inside?

Marie
Marie

We’ve had no problems with moisture, but once per week we let the door hang open for about an hour, just to air everything out.

Golfing Girl
Golfing Girl

I used to keep about $50-$100 in cash, but now that I have a family of 5 I keep about $400 hidden at home, usually $40-$100 in my wallet, and $25 in my car. I try to have twenties as well as ones and fives in case of emergencies where you don’t want to just have a $50 bill on you and need $5 worth of stuff. We also have 6 months in an online savings account. I like keeping a few hundred around the house even for the simple reason that sometimes you can get a discount for using… Read more »

John Green
John Green

I think having at least a few hundred dollars in cash is a good idea. Even though it’s pretty easy to access money from the bank these days, it’s not a guarantee that you can get to it if you need it.

If there was a real emergency such as a natural disaster, it may be impossible to get to your funds if they are in a bank. Having some cash can give you a little peace of mind.

Beard Better
Beard Better

I understand the argument for keeping cash around, but it’s just not enough to get me to do it at this point; since I still rent, that also factors into it. I know myself, and there is a much higher risk of me forgetting where I hid the money than there is of me needing a lot of cash very quickly.

Squirrelers
Squirrelers

In the interest of diversification, I think it can be fine to keep a small amount of cash. The main reason, however, is for a true non-financial emergency. There are times when having some cash around (and on your person) can be quite useful. If that means keeping it a part of the overall emergency fund, so be it.

Autumn
Autumn

This article got me thinking I should be keeping some emergency cash around the house.It makes sense to do so with all the points you brought up.I’ve become so dependent on using credit/debit cards to make purchases but in an emergency, they might be completely useless.

Tara
Tara

$200 in the wallet, $300 in an easily accessible hidden spot, and $1000 in the safe. This money is for natural disasters, late night/weekend emergencies, and convenience.

sm
sm

My gr-father kept $100 hidden in his wallet, as do I.
My other gr-father had a “stash” in the cream can, as do I.
My father hoarded his pocket change, as do I.
My mother uses the the bank, I use 3.
I believe in the investment of precious metals…GSG…Gold, Silver, Guns.

I place no restrictions or limits on my hoards.

Jay
Jay

I keep our stash in my gym sock. And I make sure I wear that sock every. single. day.

Edward
Edward

The biggest pro in having your emergency fund in a cash account (hopefully a high-interest savings account) as opposed to an investment: If an economic slapdown happens it is the moment when most people get laid-off. If you get laid off in a downturn, chances are (if your fund is in investments) the market is at all time market lowpoint. It’s a horrible time to need to access it. Losing 2%/annum to inflation while storing it in cash is nowhere near as bad as having to cash in an investment when it’s dropped 40%. It’s the very definition of selling… Read more »

marcus
marcus

I keep 6 months expenses in a checking account so that it is liquid and easy to get to. And the kicker? It gains 2.95% interest….no lie. It’s a high rewards checking account and I have to meet some stipulations…like 11 debit purchases per month etc. 2.95% on 20k in checking is unheard of these days.

Don
Don

It’s a pity CapitalOne are such b-stards… being in the country only a few months and familiar with their opposites in EU (RABO), I leaned towards them first. What a big mistake. “Oh, yeah, you can’t have a savings account because you don’t have a banking history for at least two years” says the super-helpful Heather at CapitalOne “Right.. but I’d like you GIVE YOU $7500 to start my savings. I don’t want credit, I don’t want you to take a risk, I just need somewhere to hold my cash safely” “Yeah, no, sorry. Come back in, like, 18 months… Read more »

Christopher Cook
Christopher Cook

I worry that their maybe a run on banks, history is full of banks going under I think its up to the individual how much cash you keep at home , I think the main risk would be fire and another problem for older folks is memory loss.

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