Cash is No Longer Trash, So You Can Ditch Your Home Stash

You’re probably well aware that you don’t want to keep much cash stashed at home.

While you can earn close to 5% in a simple money-market fund, you earn zero on what you keep at home. And what you leave at home could be stolen.

There’s nothing wrong with keeping a few hundred bucks around the house. That’s in case you can’t reach an ATM at some point or in the extremely unlikely event of a major meltdown in the banking system.

But the rest of your money should be in banks and investment accounts. You can research yourself or discuss with a financial advisor how your money should be allocated across various asset classes.

But apparently not everyone is getting the message. A total of 91.5% of Americans keep cash at home, according to a survey by Life and My Finances, a personal finance website.

The numbers look better for women than men, with 93.4% of men keeping cash at home versus 88.5% of women.

Education, the Perfect Hiding Place

Education also plays a role. The highest percentage of people who don’t hoard money at home have a bachelor’s degree (57%), followed by a high school diploma (25%), and a master's degree (15.4%). Keep in mind that there aren’t many people with master’s degrees, so it stands to reason that they would have a lower percentage.

So what are the favorite stash spots for those of us leaving money at home?

For 63.3% of them it’s a safe,

for 13.3% it’s the refrigerator,

for 6.1%, it’s a suitcase,

for 5% it’s a closet, and

for 4% it’s the water tank.

So where should you put your cash? FDIC-insured bank accounts and money-mark funds are probably the best vehicles. If you’re wealthy, avoid putting more than $250,000 in a single bank, as that’s the upper limit for FDIC insurance.

If you want to maximize your earnings for a bank account, check out high-yield, online accounts. some now sport rates over 4.8%. If you’re going the money-market route and are concerned about safety, you can stick to funds that invest in government-backed securities.

To be sure, these funds generally have lower yields than ones that invest outside the government space.

Cash Allocation

In deciding how much of your portfolio to devote to cash, one rule of thumb is that you want enough to cover six months’ worth of spending. That would hopefully protect you in case of an emergency, say losing your job or getting stuck in a hospital.

You also might want to keep money for payments of large upcoming expenses. That could be payment on a house or tuition payments for a child.

From 2008 until last year, you wanted a minimum allocation to cash, because interest rates were so low. But now that the Federal Reserve has pushed rates up a whopping 5 percentage points since last March, you get paid well on your cash.

So there’s no need to worry about being moderately overweighted in that asset class. Once again, cash is king.