How Much Physical Cash Do You Actually Need Access To?

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There's a popular saying that some people are so reluctant to risk losing money in the stock market, or so afraid of bank failures, that they'd rather keep their money under a mattress. It's understandable that economic uncertainty, previous bad experiences with bank accounts , and high-profile stories about bank failures might make some people want to keep more cash at home.

But how much physical cash should you really keep at home? Survey data shows that most Americans have access to less than $500 of physical cash . But is this the right amount of cash to keep at home, or too much? Having too much cash on hand sounds like a good problem, but it can be risky.

Let's look at a few reasons why you need physical cash at home (or not), and how the best bank accounts can help protect your money.

Why $500 is a reasonable amount of cash to have at home

The biggest reason to keep cash at home is in case of emergencies. It takes a lot to shut down banks and point-of-sale credit card payment systems at stores and restaurants, but it could happen.

What if your neighborhood gets hit by a natural disaster, you lose power, and you need some quick cash to buy food or pay for help? My home city recently got hit by a series of severe thunderstorms that knocked down trees and knocked out power; if we had a prolonged power outage and needed to pay for help to clear our driveway, having cash would be useful.

For emergencies, keeping $500 of physical cash at home seems like a reasonable amount. This could be enough cash to help tide you over until power is restored, banks are back open, and nearby stores are accepting credit cards again.

Why you shouldn't keep too much cash at home

Some people, unfortunately, have not had a good experience with using bank accounts. Some Americans distrust banks and don't want to keep all their money there. Other people prefer the feeling of getting to touch the money in their monthly household budget (as seen in the "cash stuffing" budgeting trend).

Actually getting to look at your emergency savings fund, in cash, might feel more secure and personal than cold numbers on a banking app.

Here are a few big risks with keeping too much cash at home.

1. Your cash at home could get stolen or destroyed

No one wants to be a victim of crime, but it does happen. Keeping too much cash in your home makes you vulnerable to robbery and theft -- or even losing your money to house fires or natural disasters. If someone uses your bank account for unauthorized transactions, the bank can give you your money back. If your cash at home gets stolen or blown away by a storm, it's often gone forever.

2. Your cash at home could get lost

Unless you are keeping your cash at home in a safe, in a reliable location, in a way that you don't forget where it is, you might lose money by, well…losing your money. But keeping money in a bank account means that every dollar is tracked and accounted for -- and you get FDIC insurance in case of bank failure. This protects your money up to $250,000 per depositor, per insured bank, per account ownership category.

3. Your cash at home doesn't earn interest

This isn't a big deal if you're only keeping a few hundred dollars at home for emergencies. But if you're keeping thousands of dollars of cash in the house, you are missing out on significant interest yield that you could get from the best high-yield savings accounts . For example, $10,000 in a 5.00% APY savings account would earn $500 in a year. Don't let your home cash stash cost you even more money by not earning interest income.

Bottom line

Some people don't keep any cash at home, but most Americans keep less than $500 of physical cash on hand. If you don't want to count on credit cards or online banking in case of emergency, keeping some physical cash at home could be a smart move. But if you're keeping thousands of dollars at home, you might want to reconsider. The best bank accounts can pay high APYs on your savings and give you the reassurance of FDIC deposit insurance.

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