Back in 2020, a podcast I was listening to suggested pulling cash out of the banks in case there was a run on them. A bank run is when so many customers try to withdraw their money at once that the bank can't pay them all. It got me thinking about how much cash anyone really needs at home, and I talked it through in a video on whether we'd see a run on the banks.
My answer is a few hundred dollars. Cash covers the moments when cards don't work, like a power outage that takes down the card readers, or someone who only takes cash. Past that, a big pile of cash at home costs you. It earns nothing, so inflation eats a little of it every year. It can burn, get lost, or get stolen. And most of what cash used to do, you can now do with a debit card or by sending money from your phone.
A better way to think about emergency money is by how fast you'd actually need it. I split it into three speeds. Money you need right now is the few hundred dollars in cash. Money you need within an hour sits in checking or savings, where an ATM or a debit card can reach it, or on a line of credit with room left on it. Money you need within a week or two can sit somewhere that pays you more. For me, the cash value in my life insurance policies does that job, since I can borrow against it and have the money in my account within days. A policy loan reduces the cash value and death benefit until it's repaid, so I use it to get through the emergency and then pay it back on a schedule.
Most emergencies don't need all the money at once. If you keep six months of expenses set aside, a car repair or a surprise bill might take a few hundred dollars, or a couple thousand. Only something like a job loss draws on the whole six months, and that happens over months instead of in an afternoon. So only a small slice has to be instantly reachable, and the rest can earn something while it waits. Where to keep an emergency fund so you don't spend it covers the accounts that fit that middle speed.
If a bank run is what worries you, know what protects your deposits. The FDIC insures deposits at member banks up to $250,000 per depositor, per bank, for each ownership category, such as individual accounts or joint accounts. Federally insured credit unions carry the same $250,000 coverage through the NCUA. If your savings stay under those limits at each place, a bank failure doesn't cost you your deposits. Keeping it all in a coffee can at home trades insured money for money that nobody insures.
The size of the whole fund depends on your job and your household, and the post on how big your emergency fund should actually be works through it.
Check how much cash you have at home today. If it's more than a few hundred dollars, move the extra into savings or toward a debt, and write down where your one-hour money and your two-week money actually sit.