In this article, we’re answering “What are liquid assets?” This will include a discussion about why liquid assets are important and how they compare to non-liquid assets.
Also, we’ll be answering common questions we receive about asset liquidity and providing examples of liquid assets below.
This article is part of our free series on banking, estates, and the legal documents that surround them, including a free detailed guide to opening a private bank account for yourself and family members.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- What Are Liquid Assets?
- Non-Liquid Assets vs Liquid Assets
- What Are Examples of Liquid Assets?
- Frequently Asked Questions
- Do You Want Help Opening Bank Accounts?
What Are Liquid Assets?
Liquid assets refer to cash and cash equivalents, marketable securities, and other current assets that can be converted into cash in a short period of time. The primary characteristics of liquid assets are marketability, convertibility, and short term liquidation.
Financial liquidity is important whether you are talking about asset management, personal finances, business finances, or even the finances of a bank or financial institution. With this in mind, we will share examples of liquid assets below. This will include the key types of liquid assets for both individuals and entities.
Non-Liquid Assets vs Liquid Assets
The main difference between non-liquid assets and liquid assets is that non-liquid assets cannot be quickly converted into cash without losing considerable value while liquid assets can be converted quickly into cash near their present value.
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What Are Examples of Liquid Assets?
Examples of liquid assets include cash, bank account balances, money market accounts, certificates of deposit, treasury bills, marketable securities, and foreign currency. Of course, this is not an exhaustive list, so let’s take a closer look at various examples of liquid assets.
- Physical cash
- Basic bank accounts
- Money market accounts
- Certificates of deposit (Fixed term deposits)
- Treasury bills
- Marketable securities
- Government bonds
- Foreign currencies
- And more
Frequently Asked Questions
Below are a few of the most common questions we receive from people looking into this topic. If you have further questions you would like to ask our team, don’t hesitate to get in touch.
Why Are Liquid Assets Important?
Liquid assets are important because they can provide a safety net for individuals and entities in times of financial strain. In short, an individual or business can sell liquid assets when they require a short term injection of capital, allowing their personal and business financial obligations to continue to be met.
Are Loans Considered Liquid Assets?
No, loans are not considered liquid assets. Instead, a loan is a liability and it reduces an individual’s total net worth, unlike assets which increase net worth.
Are Banks Accounts Considered Liquid Assets?
Yes, bank accounts are considered liquid assets. This is because basic checking and savings accounts can be quickly accessed, converted into cash, and the contents of the bank account (currency) retain their value during liquidation.
Why Are Assets Called Liquid?
Certain assets are called liquid because they are marketable, convertible, and can be sold near their present value within a short period of time. Assets that do not fit this description are generally considered non-liquid assets, though there are exceptions.
Is a Car a Liquid Asset?
No, a car is not typically a liquid asset. This is because cars generally require a selling process, a period of time to close the sale, and have various administrative steps prior to a sale being able to close.
Is a 401K Considered Liquid Assets?
No, a 401k is not a liquid asset. This is because you can’t access a 401k early without losing considerable value of the underlying asset. With this in mind, a 401k does not meet the requirement of liquidity that can quickly convert into cash near its present value.
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