He keeps ‘a few thousand in crisp new bills’ at home - is that a good idea?

In an unpredictable world, keeping cash on hand is basic personal finance. But, how much?

I asked readers how much cash they kept around and the average amount was a surprisingly high $5,069. But that was a couple of years ago, when the pandemic was constantly in the news and interest rates were ultra low. You weren’t giving up much if you took a pass on a savings account and stashed your money at home.

Today, you can get as much as 4 per cent in a savings account protected by Canada Deposit Insurance Corp. The account is offered by Motive Financial, which I evaluated in a recent edition of the Carrick on Money newsletter. With inflation-beating returns like that, are people still keen to keep cash at home?

A recent reader question suggests the answer is yes in some cases. This individual keeps “a cash reserve of a few thousand crisp new bills” at home for use in an emergency. He wonders if this is too much to keep at home rather than in a savings account.

The answer is yes. Keep some cash at home, for sure. But bulk savings belong in a bank paying reasonable interest.

Four ways cash remains indispensable in an electronic world

A thought on the amount to keep on hand is to calculate how much cash you’d need to cover household spending for a few days or a week or two, maximum. If you’re a prepper who believes disaster is lurking, fill your boots.

Cash is a hedge against blackouts that can affect electronic banking systems and sundry other catastrophes that upend the economy and business. The results of my reader survey show some people also like to have cash for the underground economy, which means being a tax evader by paying for services under the table.

The problem with keeping cash at home is that it’s not risk-free. Unless you have a safe or a great hiding spot, money can be stolen in a robbery. You can lose track of where you stashed your cash, and there’s also the remote risk of fire.

The chances that you’ll use cash you have at home are minimal. But if it makes you feel better to have a few hundred dollars around, go for it.