In today's uncertain financial climate, many individuals are contemplating whether to keep cash at home or deposit it in a bank. Recent findings reveal that the typical person keeps approximately $544 in cash and valuables such as coins, banknotes, and bullion at home. However, this practice raises questions about safety and financial security. With about 10% of respondents choosing to store their cash in a safe at home, it is crucial to examine the implications of this decision and explore alternative options.
One of the key considerations for storing money is safety. The Federal Deposit Insurance Corporation (FDIC) offers protection for money deposited in bank accounts, safeguarding it from potential loss. Shannon Martin emphasized the significance of this protection, stating, "If you keep it in a bank, the bank has insurance." This sentiment highlights the inherent risk of keeping large sums of cash at home, where they might not be insured.
Items like cash often fall under a subcategory called special limits when it comes to insurance. Some home insurance policies may have a sublimit of $200 to cover cash, coins, and precious metals. As Shannon Martin pointed out, "If something happens to your cash at home, you only have whatever's listed on your policy." This limited coverage underscores the financial vulnerability of storing significant amounts of cash at home.
While keeping some cash on hand for emergencies is advisable, experts suggest limiting the amount. Carolyn McClanahan shared her perspective: "Having enough cash to get you through a day, perhaps two, actually makes sense." This approach ensures preparedness for unforeseen circumstances without exposing oneself to unnecessary risk. Additionally, storing emergency funds in a water- and fireproof safe can offer some protection against physical damage.
For those considering higher coverage for cash stored at home, endorsements can be added to insurance policies. However, proving possession of a high amount of money at home is necessary to increase coverage. As Carolyn McClanahan humorously remarked, "If you're trying to put in the claim for $10,000 of cash that you have stuffed in your mattress, there's probably a lot of questions around that."
Aside from safety concerns, financial growth is another factor weighing against keeping large sums of cash at home. Money deposited in an FDIC-protected account is not only safer but can also earn interest. The average high-yield savings account offers an average annual percentage yield (APY) of 4.20%, significantly higher than the 0.6% APY found in standard accounts. By keeping money in the bank, individuals can potentially benefit from these higher returns.
Despite short-term market volatility, investment returns generally outpace inflation over long timelines. Therefore, while cash remains king for immediate emergency funds, diversifying assets through investments can enhance financial stability in the long run.
Furthermore, ensuring everyone in the household is aware of where emergency funds are kept can prevent confusion during crises. Lee Baker advised against dispersing emergency money too widely: "I would not encourage emergency money being in too many different places." Consolidating funds in a single secure location within the home can facilitate quick access when needed.