Question: “When it comes to cash vs bank accounts, how much cash do you recommend keeping on hand? Are high yield savings accounts these days without a lot in them truly worthwhile?”
Answer: In bank accounts I recommend 3 months of expenses for dual income households, 6 months of expenses for single income households, perhaps a bit more in downturns, but not much more than that. Beyond the emergency fund and any short term savings goals your money should be invested so that inflation doesn’t eat up the buying power.
Actual paper money at home – ohhhh yes. This is a Zombie Apocalypse question.
In general your money is safer in the bank, but it’s good to have some cash on hand in case of a disaster (power is out so the stores can’t run credit cards, you are doing a Thelma and Louise style run for the border and don’t want the cops to trace your debit card transactions, etc.)
I’d say a few hundred dollars in $20s depending upon how secure your house is, how trustworthy your roommates are, and how certain you are that the dystopian future your favorite young adult novel or movie has warned us about is upon us.
We have a safe and keep some cash there. If I didn’t have a safe, I’d keep less at home.
I don’t recommend buying the small lockboxes and putting all your valuables in that. You are just concentrating all your valuables in a to go box that people can crack into later at their own convenience. When I say “safe” I’m talking about something that is bolted to the floor – obviously not an option for renters.
The savings account rates right now are very low. My parents remember the rates in the 70s and 80s and keep expecting rates to “come back”. I don’t think it’s happening any time soon, and if it does, rates on debt will likely go up too, so we have to be careful what we wish for.
Personally, I keep my emergency fund right next to my main checking account at my credit union. That way if there’s an emergency I can access it easily.
I would keep at least one month’s expenses in checking and/or savings so you can get at it quickly.
If you are keeping a lot of savings and want to keep the majority of it someplace else to get a slightly higher rate, you can. It’s up to you if it’s worth the hassle. If it helps you keep your hands off it and pays out a little higher it can be worth it.
CDs are a thing (ask your credit union or bank), but I don’t know that it’s really worth it to lock your money up for a tiny bit more interest. I wouldn’t do this with your emergency fund, as it needs to be accessible.
Another option is money market funds, which probably pay a bit more than your checking or savings accounts, and might be a way to get you comfortable with opening a brokerage account. But they aren’t super exciting, either.
The best approach is to think of your emergency fund as insurance. You generally don’t worry about getting paid interest on car insurance – you just pay it and then when you crash your car it’s there. Same idea.
If you want to earn money on your money, that’s what you do with your EXTRA extra money, after your savings.
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