As the Eurozone currently deals with their own debt crisis, many financial pundits are beginning to toss around the term “bank holiday,” something the U.S. has not had to contend with since the 1930s.
Many in Greece have already started to prepare by withdrawing large amounts of their savings and storing it at home (which has also led to an increase in burglaries).
What is a Bank Holiday?
A bank holiday generically refers to any day in which banks are closed to the public. In the context of a financial crisis, bank holidays refer to a day where there is an emergency bank closure to avert a bank run.
When it hits the fan, many people immediately head for their bank to withdraw money for “safe keeping.” This causes a tremendous strain on the banking system. Remember, too, that we have a fractional-reserve banking system whereby only a fractional of actual deposits are kept on hand. It’s not like you can walk into a bank and ask them for $100 in the same dollar bills you deposited a year ago.
How to Turn a Bank Holiday into a Non-Event
I have always advocated keeping a reasonable amount of cash both on your person and in your home. When considering how much to keep in various places, it’s a good idea to consider the scenarios under which you may need cash, and how accessible it may be under each scenario.
For example, imagine you are out and about in your vehicle when some type of natural (or man-made) disaster strikes and cuts off your route home. For a time, you may need to live off of what’s in your pocket and in your vehicle. It’s possible that stores and hotels in the area will be without power and/or access to a credit card network and may accept only cash.
This was the case when tornadoes stuck areas in north Alabama last year and devastated complete towns and communities. Those in need of water, food and supplies were often greeted by “Cash Only” signs upon entering local stores.
Store owners were without power, and those with power, or on backup power, found themselves cut off from the financial grid because of a lack of network access.
How Much Cash to Save at Home
This is not necessarily a case of more is better. You must find a balance between saving an amount that provides peace of mind in the event of a bank holiday, but not so much that it creates additional worry over its security (or so much that it would cause you significant financial damage if it was lost).
Aim to keep roughly one month of household expenses in cash stored at home, in various secure locations throughout your property. Keep a portion of the money in a fire-proof safe, but don’t keep all your cash here as it is an obvious target for would-be thieves.
Be sure to save in a combination of smaller denominations – ones, fives and tens are preferable to larger bills. Remember, if you need to pay someone with cash they will not likely have much themselves making the task of making change difficult.
Also consider saving a portion of the money in silver, quarters, and nickels, because again these are easier to make exact amounts and because of their potential barter value.
Keep some money in a relatively obvious spot in the hopes that a burglar may find this initial amount and flee. Do not tell anyone other than your spouse about the hidden cash.
In the event of a banking holiday, you and your family will be well-prepared to weather the chaos. While others are standing in line with hordes of angry people, you can simply hunker down in your home.