What Are Liquid Assets?

Anything of financial value is an asset, and a liquid asset can be easily converted into cash. Liquid assets include cash on hand, savings and checking accounts, and investments such as stocks and bonds. You can easily access the cash value of these assets, usually within a few days, without major concerns about losing value.

Liquid assets are a resource for covering immediate expenses or emergencies, and you can rely on them if you need cash fast. Maintaining liquid assets can give you a safety net for emergencies or time-sensitive opportunities. That means you can cover short-term expenses without sacrificing long-term investments like real estate or retirement accounts.

What are liquid assets?

Liquid assets are resources you own that can quickly convert into cash without losing significant value. For example, you can pull cash out of your checking or savings account, which will still be worth the same as when it was in your account. You can easily use your funds with immediate or fast access to the liquid asset value.

Assets like stocks and bonds are also liquid assets, as you can typically cash those in reasonably quickly for their actual value, unlike physical assets, which might take time to sell if you want to get fair market value.

Common liquid assets include cash, bank accounts, stocks and bonds. These assets can contribute to your financial stability because it’s easy to use them to cover expenses immediately or within a few days. However, some liquid assets, such as certificates of deposit or bonds, might charge an early withdrawal penalty if they are cashed in before maturity.

What is an example of a liquid asset?

Deposit accounts and actual cash are highly liquid assets. Other financial accounts or assets that can be sold or cashed in quickly without losing much — if any — value are also considered liquid.

• Cash: Cash is the most liquid asset. It’s widely accepted and available to use immediately for transactions.
• Savings account: Money in your savings account can be quickly withdrawn or transferred, though some banks limit the number of transactions you can make monthly.
• Checking account: Checking account funds are nearly as liquid as cash. You can use your checking account to make unlimited debit card purchases, withdrawals or transfers.
• Money market accounts: Money market accounts are slightly more liquid than savings accounts because money market accounts offer easier access to funds with debit card or check-writing capabilities. However, the number of check, debit card or transfer transactions you can make each month may be limited.
• Certificates of deposit (CDs): CDs are locked in for a fixed term but can be withdrawn earlier, usually with a penalty.
• Stocks: Stocks are liquid, marketable securities because their value can be accessed quickly, though you’ll have to sell them on a stock exchange, and their value fluctuates with market conditions.
• Bonds: Bonds are somewhat liquid because they can be sold before maturity, but you may get less than the full value if you sell them before maturity.
• Mutual funds: You can sell mutual funds, such as money market funds, on any business day to tap their liquidity, though values can fluctuate, and accessing the proceeds may take a couple of days.
• Life insurance: Life insurance policies with cash value can offer cash access via a life insurance loan, as loan collateral or by surrendering your policy for cash.
• Treasury bills (T-bills): T-bills are government securities that can be easily sold for cash before maturity, though you won’t get the full value if you sell them early.

What are nonliquid assets?

Nonliquid assets, also called illiquid assets, can’t be easily converted to cash. These assets might take significant time and effort to sell at their fair market value, although you may be able to sell them off quickly at a discount.

• Your home: Real estate, such as your home, may be valuable, but selling it could take months or years, and the value can change with market conditions.
• Your car: Although a car is easier to sell than a house, the value depends on your car’s age and condition.
• Collectibles, artwork, jewelry and other valuables: These assets might be worth quite a bit, but only if you can find a buyer. Finding a market for valuables takes time, and you might be forced to sell at a significant discount if you need cash on short notice.
• Retirement accounts: If you’re younger than 59½, you’ll generally have to pay a penalty to take money out of your retirement funds. Usually, you’ll have to take out a loan or pay early withdrawal fees.
• Private equity: Private equity funds are illiquid because of the high transaction costs of sellling fund positions.
• Business ownership: A business may have assets quickly converted to cash on its balance sheet, such as bank deposits and accounts receivable. However, it’s tougher to turn business ownership value into liquidity, as selling an ownership stake takes time and requires finding interested buyers or investors.

Frequently asked questions

Which asset would be considered to be the most liquid?

Cash on hand is the most liquid asset, followed closely by checking and savings accounts. Checking and savings accounts can be cashed out or used to make purchases easily and quickly.

Is real estate a liquid asset?

Real estate is an illiquid asset. While it may hold significant value, selling property takes time and effort, and you will most likely need to pay fees like real estate agent commission, home inspection fees and more. Real estate is not a liquid asset because it can’t be quickly converted into cash.

Is furniture a liquid asset?

Furniture is not a liquid asset, as it’s personal property, though furniture can be more easily sold than major property such as real estate. Getting cash value from furniture depends on finding a buyer, which can take time, and its value depends on factors such as condition, demand and the market.