What Is a Liquid Asset? [Liquid Assets 101]

If you’re wondering “What is a liquid asset?” There’s a good chance you’re exploring high-net-worth banking in top-tier financial services hubs or maybe you’re opening a US bank account as a foreign non-resident.

In this article, we’ll share examples of liquid assets, compare them to illiquid assets, and answer several questions on the topic from our members.

Feel free to use the table of contents to jump ahead to the sections most relevant to you.

Table of Contents

  1. What Is a Liquid Asset?
  2. Liquid Assets vs Non-Liquid Assets
  3. Frequently Asked Questions
  4. Ready to Open Accounts With Banks in the USA?

What Is a Liquid Asset?

Liquid asset refers to property that is easily convertible into cash. Not surprisingly, these type of possessions include cash, securities, money market funds, short term bonds, and other marketable securities. That said, the specific time frame that a possession needs to be sold in order to qualify as liquid can vary. In certain instances, possessions that can be sold in less than 12 months are considered liquid assets.

Liquid Assets vs Non-Liquid Assets

The main difference between liquid and non-liquid assets is that liquid possessions can be quickly converted into cash while retaining their current value. Non-liquid (or illiquid) assets cannot be quickly converted into cash without a significant loss in current value. In other words, liquid possessions are a reliable source of cash for an individual or business (regardless of status as a resident or non-resident) while non-liquid possesions are not reliable.

Let’s take a closer look at them both below.

Liquid Assets

Liquid assets are those possessions that can quickly be converted into cash. Not surprisingly, these types of possessions include physical cash and cash held in bank accounts. But also, marketable securities that are easily liquidated and short term bonds. In other words, they are any possession that a person or business can quickly receive cash for in a time of need. In fact, in the case of business, liquid assets can also include accounts receivable when they have a reasonable expectation of collection.

Illiquid Assets or Non-Liquid Assets

Illiquid assets (or non-liquid assets) refer to possessions that cannot be easily converted into cash. That said, illiquid assets can almost always be sold in the short term, albeit at a significant discount. However, this is also a qualifying characteristic of an illiquid asset. On the other hand, if a possession could be sold quickly while retaining most of it’s value, it would be considered a liquid asset.

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Frequently Asked Questions

Below are three of the most common questions that we receive from people looking into what a liquid asset is. If you have further questions you would like answered, don’t hesitate to get in touch with us directly.

What Are Examples of Liquid Assets?

Examples of liquid assets are those possessions that are already held in cash or can easily be converted into cash in a short period of time. Not surprisingly, this includes marketable securities, money market funds, and short term bonds. Businesses may also consider their accounts receivable as examples of liquid assets when they expect to collect payment in a short period of time.

What Assets Are Considered Non-Liquid?

Possessions that are considered non-liquid include possessions that cannot be easily converted into cash in a short period of time. That said, this can vary depending on where the possessions are held and whether there is an active market for the specific asset.

In most cases, possessions like land, real estate, large industrial and farming equipment, and other physical possessions are also non-liquid possessions. One of the reasons for this is that they can take a longer time to convert to cash. This is especially true when compared to marketable securities and other cash like holdings.

Why Are Liquid Assets Important?

They are important because they reflect an individual’s (or a business’) ability to quickly access capital in a time of need. In other words, during an economic downturn, interruption in employment or revenue, or during times of financial stress, the individual (or business) will be able to continue meeting their financial obligations through access to sufficient possessions.

Not surprisingly, this is why a statement of possessions can often be a requirement for when non-residents and foreigners are looking to access financing to purchase real estate. In short, financial institutions want to better understand a person’s (or business’) ability to meet their obligations.

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GlobalBanks Team
GlobalBanks Team

The GlobalBanks editorial team comprises a group of subject-matter experts from across the banking world, including former bankers, analysts, investors, and entrepreneurs. All have in-depth knowledge and experience in various aspects of international banking. In particular, they have expertise in banking for foreigners, non-residents, and both foreign and offshore companies.

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