Should we keep some of our emergency fund in cash at home?

Question

We live in the US and have worked very hard to set aside 12 months of regular living expenses in an emergency fund. It is primarily to cover us in the event of an unexpected job loss, but it has also come in handy for other unpleasant surprises (car dying, well failure, etc.). We keep the money in a regular savings account at our local bank, linked to our checking account. In an emergency we can transfer into our checking account and have it available same-day. Then, our next financial priority (after paying the bills, but ahead of saving for other projects), is to replenish the fund.

The recent turmoil in Europe has gotten us thinking, though. Should we also have a sizable amount of cash on hand that we keep in our house in the event that there is some type of situation where we aren't able to access our accounts at the bank?

Pros would be (1) immediate access to the money, and (2) we'd have a readily-available source of money that anyone would be likely to accept even if there was a disruption in credit cards or bank accounts.

Cons are (obviously) that if the emergency occurred when we were away from home, we wouldn't be able to use it. Also, if our house were robbed, or burned down, the money would be lost. As far as I know, homeowner's insurance only covers a trivial amount of cash lost.

Finally, if the consensus is that we should keep a bunch of cash on hand, how much makes sense?

Answer 1

I would not allow fear to be a driving motivation.

However, we do keep some cash and it comes in handy. Normally about 1K is found in our safe, and we use it for cash needs and avoiding running to the ATM. Things like parking for sporting events, buying stuff on Facebook market place, etc...

Recently I had some electrical work done on my home for a very good price. They then offered a discount for cash, which I did so. I was also so happy with the work, I tipped the two workers and it really made one guy's day. I just pulled the cash from the safe and replenished it later.

Please pat yourself and your spouse on the back for hitting this milestone. IMHO, it is the hardest financial milestones to hit.

Answer 2

It's hard to decide what level of catastrophe you want to be prepared for and people will have varying opinions on the topic. Some people keep gold/silver at home thinking that cash won't be valuable if something significant enough happened that made your funds at the bank inaccessible. Others think that guns, ammo, clean water, medicine, fuel, food, etc. are what you should really have on hand in case of emergency/catastrophe.

Personally, I like having some cash on hand, somewhat for peace of mind but mostly for convenience and for saving money when people offer cash discounts. How much you should keep on hand is also a matter of opinion, I'm comfortable having several thousand on hand but many people are not. I'd say, if the amount of cash you have in your house causes any anxiety then it's too much.

Answer 3

Yes, but not too much again, for slightly different reasons.

Here in the UK we've seen cases of IT failures taking out card processing systems for hours or even days. In those cases cash still works, and if you were due a big grocery shop, you could need say $200 on hand. Most other purchases could wait - after all everyone is in the same boat. Major power cuts would have a similar effect. This, and my further mitigations below, cover you against short term issues due to card theft.

So I have about £100 locked away securely at home, and about another £100 in various wallets etc. Call it $250 in ready cash total in GBP*

With savings rates so low, there's no financial downside, and the amount I propose isn't enough to markedly increase my risk of theft, or my losses if the house was ransacked. My safe is also fire-resistant; even so, in the context of a house fire the amount is negligible.

There are plausible failure modes that would allow you to spend but not to transfer, so running the checking account ("current account" here) close to zero isn't all that wise anyway, but on the other hand keeping some separation between funds is helpful.

There are further mitigations that also help: I have 3 credit cards and 2 debit cards, also good for withdrawing cash.** They're all on separate accounts, spread across 3 banks, and including Visa and Mastercard, so if only one of those goes down, or one bank, I'm still OK. I (almost) always have exactly one of the credit cards and exactly one of the debit cards with me, the other debit card and a credit card in another wallet at home, and the last credit card tucked away at home. I have cash to hand at all times too, enough for a meal and to get home (e.g. in my bike toolkit, in my desk drawer in work, in a safe in my van, as well as a comparable amount in my wallet). I also have a mutual support network that I could call on in cases of e.g. identity theft - and would do the same for them.

In the general case, as is often said in the context of information security - what's your threat model? I've named a couple of plausible ones that would be helped by having modest amounts of cash, but personally don't think that large amounts of cash are helpful against current realistic threats where I live.

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* _{Plus some EUR and USD because I didn't want to spend the commission on changing back - but that's not strategy.}

** _{Here, debit cards and credit cards are separate pieces of plastic. I ignore phone-based payment systems, regarding them as a convenience but quite a fragile one.}

Answer 4

It's always good to have an emergency stash on hand. Not just for large-scale emergencies like you mention, but consider this more common scenario:

Several years ago, my sister's debit card got cloned and the thief nearly drained her account (the only one she had). The bank detected the fraudulent activity, froze the card/account, and returned the money after investigating. During their week-long investigation, however, she couldn't access any money in the frozen account. She had enough loose change to take the bus home from work that day, but otherwise had to coast for a week with zero money.

Ever since then, I keep an emergency stash on hand to ensure that I don't get stuck in the same sort of situation. There's a bit of cash in there, but it's primarily gift cards. I have a bunch of cards in the $20-50 range for a variety of different restaurants in my area, plus $100 cards for gas stations and grocery stores. There are a few more assorted cards in case I need to buy clothes or household goods. My target is to be able to cover about 3 weeks' worth of necessities. The gift cards have a couple of advantages:

• Since they're only good at one place, it's like having a strictly enforced budget. It's tempting to spend cash on impulse purchases, but that's a lot harder with gift cards.
• A lot of people tend to accumulate random gift cards in small denominations (door prizes, gift exchanges at work, etc). Probably 85% of my stash is stuff I've been given over time, $5-10 at a time. Put those to a useful purpose.
• Unlike cash, some vendors' gift cards can be replaced if lost or stolen.
• From time to time, some businesses (typically restaurants) have deals where if you buy a gift card for at least $X, they give you an additional $5-10 gift card. That's a better return on investment than stashing cash for the same purpose. Sometimes, you can also get advantageous conversion rates between credit card reward points and gift cards.

The key difference is that I'm hedging against a scenario where I can't access my bank account. If nobody can access their bank account, then you have a much larger problem that's harder to plan for. Even if you have a bunch of cash, it will be hard to buy things as stores will quickly run out of change. Stores will also be hesitant to do a lot of cash transactions since most stores don't have any way to store that cash securely (they normally deposit it in the bank nightly). There's also the risk that the value of your currency fluctuates wildly and the value of your cash isn't what you thought it was. Things like bus tokens are good for stashing because they're good for "one ride", not a dollar amount. Having enough cash to get out of town and to somewhere safe isn't a bad idea. If you live near a border, it wouldn't hurt to have some cash in the neighboring country's currency. In a warfare situation, your fiat currency could even become obsolete and worthless if your area is captured by the enemy. The consequences of a large-scale economic disruption are incredibly unpredictable, though, so it's hard to say exactly how to plan for that sort of thing.

Answer 5

No.

In the US, cash is subject to civil forfeiture at any time. Never keep large amounts of money in cash. This is not fair or constitutionally justified, but police will consider the mere presence of a large amount of cash sufficiently suspicious to confiscate it, and you almost surely will not get it back if they do. This is on top of it already being at risk of theft by ordinary non-state thieves.

In an event where nobody is able to access deposit accounts or credit, you're going to be off the hook for a while for paying large bills, and depending on the severity of the situation, cash in the same currency denomination might not even be of much value. Actual goods of material value would be a much more useful reserve to have. Having some cash is not a bad idea here, but I would not call it "some of your emergency fund" since the scale should not be comparable to the size of an "emergency fund" (think "hundreds of dollars" vs "tens of thousands of dollars").

In the event where you alone are unable to access deposits because you've been accused of a crime that resulted in them being frozen, or something similar, it's likely that your cash has been taken too (see above). It would be much more useful to have a few accounts not in your name (e.g. prepaid debit cards, or even "magical toy money") with the knowledge of how to access them well-hidden. And you still should not have any large amount of money in them, because it's at risk of being lost too.

Answer 6

In recent storms (Katrina, Sandy) telephone lines and the ability to use ATMs and credit cards for gasoline has been interrupted for weeks. Maybe because my family has evacuated from beach towns in front of normal hurricanes when I was growing up it seems natural to me.

If you live in an area at risk for new or more extreme climate change events, having enough cash to get necessities and temporarily relocate is a reasonable level to hold. I don't carry it daily but do keep enough cash in the house for about 2 days of restaurant meals for the whole family (or more days of grocery staples), 2 gasoline fills and 2 hotel nights. The way gasoline has recently risen is worth a review. If you live in an area with sparser services or wider event risk, you may need more to facilitate a longer evacuation trip to a place where you could normally access asset accounts.

Answer 7

Absolutely. A good way to think of it is as a hierarchy of liquidity. You want most of your money in lower liquidity accounts where it can earn interest, and be more secure than cash (or a checking account connected to a debit card), but you want enough money in high liquidity forms to have quick access to it when needed. My rule of thumb is to keep enough to cover:

• Cash in Wallet: 1 week of spending money (gas, restaurant, etc), even if I normally pay with credit.
• Cash in Safe: 1 month of spending money.
• Checking Account: 1 month of bills (spending money + utilities, mortgage, etc).
• Savings Accounts: 3 months of bills, plus saving up for planned expenses (vacation, etc).
• Retirement Account: To be dipped into only if emergencies exhaust all of the above.

Like others mentioned, these all exist to be used as needed and replenished. I don't treat my cash in safe any differently than I would my credit card - I use it anytime it is more convenient to pay in cash, and then shore it up at the end of the month.

Answer 8

If you are concerned about burglary, or even forfeiture of cash as another answer here suggests, then the amount of cash to keep on hand comes down to "not more than you are prepared to lose" and is probably therefore very relative to the amount of money you have in your emergency fund & other savings.

My suggestion for that would be somewhere in the region of one month's expenditures. That should cover food & other bills for a month (in case you get cut off from all your bank accounts but the economy is still okay) or cover one major problem item that you end up paying cash for.

Answer 9

What is sizeable?

I make a point of having cash in my wallet for a week of groceries, or a new shirt, or a cheap pair of trousers or shoes, or a dinner in a not-quite-cheap restaurant. Expenses I don't plan on, but which might come up. The money is in relatively small bills, so I could also give part to somebody and say 'keep the change' without too much regret. I sometimes dip into it to avoid ATM fees, but then I replace it soon.

If you shop for a family and not just yourself, that number would be multiplied accordingly, and we'd be speaking about more than small change. But a safe with envelopes fuull of money is not in my reality, and probably not in yours.

Answer 10

If you really want to prepare for emergency:

1. Prep your home with 3 months of food and emergency supplies
2. Keep some silver and gold coins hidden in your house
3. Make a go bag and have gas for your vehicle

If you are in USA

4. Legally buy a weapon, hide it and store it safely

Note that having cash won't help during a real emergency.

Answer 11

I may say first that I am in Germany, where cash transactions are anyways far more common than in many other regions of the world, at the outskirts of a metropolitan area (it's a region that is mixed wrt rural/urban life style) I have my office in a town of ≈ 6k inhabitants.

Here's one of your little everyday accidents: one of the internet distributing boxes was destroyed in a car crash, leaving the 2 grocery stores/small supermarkets, drug store, pharmacy, bakery, little bank branch, and a couple more businesses as well as a couple of residential streets without internet.
Meaning, you could not pay by card in any of the stores - but cash worked, though you couldn't get cash from the ATM down there (there's another bank branch which was not affected). I don't know whether mobile internet worked.
For most people, no problem: there are several things that each solved the situation:

• cash 
  (btw, several farms and a hunter/butcher sell vegetables, eggs, meat - all cash only - some things via honesty box others vending machine. No milk-o-mat in the direct vicinity, though.)
• have a car and go to supermarket next village (5 km), pharmacy (7 km), drug store (10 km).
  No car is rare - with the exception of old people who do not drive any more. But of course, you may be unlucky and hit just the days when the car is for inspection or repair.
  You could of course also go by bike, the village with the supermarket is connected by bus (ticket to be paid in cash), the town with drug store can be reached by train (ticket machine behind said internet box, though).
• have sufficient stock of groceries so you can wait until the box is repaired (took surprisingly long, though, about a week IIRC)

Personally, I also have several weeks at least of non-perishable groceries (I don't like shopping, so I try to buy as much as possible per occasion). I also have suffcient cash to get along for several weeks in terms of gas, supermarket, hardware store.

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More rare, but also far higher bills to be paid: when someone dies, their bank may freeze the account. This is exactly at a time when substantial bills have to be paid. Usually, this is resolved within a few working days or maybe weeks. However, I know of one occasion where it took several months (for no more reason than administrative chaos at the bank who taken the handling of such situations from the local branches to a central office)