Yahoo Finance 3 Risks of Keeping Too Much Cash at Home
Although talk of a “cashless society” is premature, there’s no denying that cash is becoming less and less of a factor in most Americans’ daily lives. In fact, according to Capital One, cash is now only used in 12% of in-store transactions in the United States. Yet, many Americans still feel as if keeping cash at home is the safest thing to do with it.
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To determine exactly how Americans keep their money safe, GOBankingRates conducted a 20-question survey in August 2023, with one of the questions asking how much the average American keeps in cash at home. Overall, more than 50% of respondents indicated they kept between $0 and $100 in cash at home, but about 17% kept $501 or more on hand. Results were fairly consistent across age groups, but men tended to keep more cash at home than women.
While having some amount of cash at home serves a role, in most cases, having too much of it can actually be a negative. While it may sound strange that having too much “actual money” could be a problem, there are certainly risks involved. Here are the most important ones to consider.
Theft/Loss/Misplacement
Probably the biggest risk of having too much cash at home is that it could be stolen, lost in a fire or even simply misplaced. Unlike some other forms of payment, cash cannot be replaced. Once it’s gone, it’s gone. So, saving up $50,000 as a down payment for your home and keeping it all in your house isn’t generally a good idea, because if it’s stolen or somehow lost in a natural disaster, your dreams will be pushed back years — or perhaps even forever. It’s just not worth taking that type of risk. Even if you keep meticulous records, have a fire- and water-proof safe and live in a low-crime neighborhood, just the thought that one incident could cost you your life savings is stressful enough to make this a poor option.
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Lost Opportunity Cost
Any time you put your money in one place, you are giving up the opportunity to gain by having it somewhere else. For example, if you keep your money under the mattress as opposed to in a high-yield savings account, you’re missing out on both the insurance offered by a HYSA and the interest that it pays. In the current market environment, that’s likely over 4% annually. If you’re saving that cash for a long-term goal like your retirement, keeping it as cash instead of investing it in the stock market, for example, might cost you as much as 10% annually on average. Over the course of 30 years, that could really add up. Invested at 10% per year, $100,000 will run up to nearly $2 million, but $100,000 left at home will remain at just $100,000.
Depreciation
One factor that many savers overlook is that money actually depreciates in value over time. Thanks to the effects of inflation, prices of goods and services increase over time, sometimes dramatically. So, rather than keeping its value, any money you have locked away as cash at home will buy a little bit less every day. Thirty years from now, the cash you have will be worth far less than what you have today.
Here’s a statistic that might drive this point home. As of June 2023, the average price of a new car was $48,808. But in 2003, the average price of a new car was just $24,773, or roughly half. If you keep all your money in cash, over time, you’ll be able to afford less and less.
Alternative Places for Cash
Anywhere that you can earn a return greater than 0% is a viable option as a place to keep your cash. Of course, the best place for you will depend on your goals for the money, along with your ability to handle risk.
For example, if you’re saving money for a down payment on a house you intend to purchase within a few years, an insured, high-yield savings account can provide the safety and liquidity you need while earning you a decent rate of return. Money you’re tucking away for retirement multiple decades down the road may be better served in a growth vehicle like the stock market. While more volatile, it offers a higher risk-reward profile, and your long time horizon gives you the chance to ride out any short-term setbacks.
If you’re at all uncertain as to what you should be doing with your money, consider speaking with a licensed financial advisor.
Should You Keep Any Cash at Home?
This isn’t to say that you shouldn’t keep any cash at all at home. In fact, it’s always a good idea to keep at least some cash lying around. If there’s an emergency and you need cash fast, you might not be able to run to an ATM to get what you need. In a more catastrophic situation like a natural disaster, there might not be any power to run ATM or credit card machines, and you’ll only be able to get the essentials you need by paying cash. For this reason, it’s sensible to keep at least a few hundred or even a few thousand dollars in cash at home. But beyond that, consider using savings and investment accounts to house your money instead.
Methodology: GOBankingRates surveyed 1,141 Americans aged 18 and older from across the country between August 2 and August 6, 2023, asking twenty different questions: (1) Have you ever been the victim of identity theft, a financial scam or financial fraud?; (2) If you have been a victim of identity theft, which type of theft did you experience?; (3) If you have been a victim of a financial scam, which type of scam did you experience? (select all that apply); (4) If you have been a victim of financial fraud, what type of fraud did you experience? (select all that apply); (5) Have you ever been scammed making any of the following purchases?; (6) All together, how much money have you lost due to identity theft, financial scams and/or financial fraud?; (7) If you lost money due to identity theft, a financial scam or financial fraud, were you reimbursed for it?; (8) What is the most common way you are contacted by scammers?; (9) How often do you change your bank account passwords?; (10) How do you keep your money safe while traveling? (select all that apply); (11) Where do you think is the safest place to keep your money?; (12) How much physical cash do you keep at home?; (13) If you have been scammed out of money when shopping online, how much did you lose?; (14) If you are retired, have you ever experienced these common retirement scams? (select all that apply); (15) Have you, or any of your family members, experienced a Social Security scam?; (16) If you have lost money from a tax scam, how much did you lose?; (17) Have you ever experienced a student loan forgiveness scam?; (18) What type of impact do you think identity theft has on its victims?; (19) What are some ways you protect yourself from identity theft today? (select all that apply); and (20) Do you have antivirus software installed on your computer?. GOBankingRates used PureSpectrum’s survey platform to conduct the poll.
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This article originally appeared on GOBankingRates.com: 3 Risks of Keeping Too Much Cash at Home
