Hey, as you are searching for the account type with the most liquidity, you may already know what liquidity means in terms of finance. If not, then liquidity is a term in finance that implies turning an asset into hard cash quickly. It’s so because an asset is generally considered as a solid item and cash is considered as liquid because it can fix your financial problems easily.
What type of account is typically the most liquid ? There are multiple options such as A. Checking Account. B. Savings Account. C. Certificate of Deposit (CD). D. Exchange Traded Fund(ETF)
Are you interested in opening an account that can be emptied easily or you can withdraw money immediately when required? Then go for a liquid account. But the answer to your question doesn’t end here.
Any account that has only cash can be considered a liquid account. For example, a savings account or a checking account is considered to be the most liquid account.
It is always advisable to keep some hard cash beside you because you never know when a financial emergency can strikeout. However, please note that these types of accounts don’t offer you enough returns, so your earnings can be less.
If you don’t want to go for a reward checking account, the other types of accounts are savings accounts, normal checking accounts, or money market accounts.
Stay tuned to get all your doubts cleared related to what type of account is typically the most liquid!
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Table of Contents
How Liquid Is A Savings Account?
When anyone becomes eligible to open an account, the first and foremost type that comes to your mind is to open a savings account with any bank or financial institution. Isn’t it so?
Now, the question in our topic of discussion is ‘How liquid is a savings account?’
Savings accounts feature a decent amount of liquidity. There are no penalty charges incurred if you wish to withdraw some or all of your cash. For withdrawing full cash, you may need to close your account before taking it out.
However, if you want to keep your savings bank account, then you must maintain a minimum balance so that it doesn’t become inactive. The interest rates are not much but it varies depending on several parameters like age, gender, income depending on the country’s laws and regulations.
Hence, if you want to keep a certain part of your income as cash for financial emergencies and want a simple option with good liquidity, savings bank accounts can be a favorable option.
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Which Type of Account Is The Least Liquid? What Type Of Account Is Typically The Most Liquid ?
Among the various types of accounts available, the certificate of deposit features a lesser amount of liquidity. Certificate of Deposit (CD) implies keeping a certain lump sum amount with the bank for a particular duration which may vary depending on the CD and financial institutions.
The terms of a CD can range from a few days to several years. If you want to liquid CDs before that period, you need to give some amount of penalty charges to the institution. These early withdrawal fees can take out some portion of your earned interest or sometimes may even the initial deposit.
The advantage that CDs provide is the higher yield than other liquid account types. But, that majorly depends on the term that you have chosen. If you have locked up to your deposit for some years and stay committed to it, then the earned interest amount can be decent. However, that doesn’t have any role when it comes to liquidity which is our focus of discussion here.
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Which Deposit Has The Highest Liquidity?
The money deposited in a bank or any other financial institution that offers the benefits of withdrawing money any time on demand is known as a demand deposit. People generally use demand deposits for paying everyday expenses or bills. These demand deposit accounts are backed by zero or very low amounts of interest rates.
There are various types of demand deposits out of which we already have discussed the savings accounts. Another common and popular example is a checking account which is also a type of demand deposit.
Checking accounts are also known to be the most liquid bank accounts that you can opt for. They let you take out money anytime you need it. Moreover, they don’t charge any fees and there is even no limit for withdrawals.
The only factor with the checking accounts is that they can have minimum balance requirements sometimes. If so, just maintain that to keep it active. But, checking accounts can be a great option to keep your cash aside that you may require in the immediate future due to higher liquidity.
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How Liquid Is A Money Market Account?
We have already told you about the savings accounts earlier. Money market accounts follow the same path as savings accounts. They also need a minimum balance to remain active. However, this can be higher than savings accounts.
But, they also offer a decent amount of liquidity like the savings account since they follow almost the same rules. The money market accounts also offer a bit more interest rate than the savings bank accounts.
The downside is that you need to keep a higher portion of your deposit for the minimum balance requirement making it a little less liquid account.
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Can Investments Be Considered Liquid Assets?
Yes, there are several investment options that can be considered liquid assets. For instance, liquid stocks and bonds offer a good amount of liquidity as they can be converted into cash during trading sessions by selling.
In addition, mutual funds also offer liquidity but they take a bit more time to get settled into cash than stocks. It’s because mutual funds are traded at the end of each trading session. However, they are still easier for liquidity.
Tangible assets like real estate, lands, properties feature much lesser liquidity. We have arranged the various investments in the decreasing order of liquidity.
- Mutual Funds
- Gold, silver, or other jewelry in physical form
- real estate
- Small businesses.
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Final Words !
Hope that this guide has been quite informative and helpful for your understanding regarding liquid accounts. We have tried to clear the concept and most liquid accounts throughout our discussion.
It is seen at last that some investments can be liquidated easily while some are not. But, if you want to grow your money, it’s always better to go with investments than savings.