Liquidity ensures ease of cash access and liquid assets are the ones that can be easily converted into cash for immediate use, without it losing its value. Many types of investments, inventory, and accounts receivable qualify as liquid assets that can be sold or claimed to convert the asset into cash.
A well-established market for sale, a large number of interested buyers, and the ability to easily transfer ownership are pertinent factors that will affect the liquidity of an asset. Market conditions can also influence liquid assets and their ability to be converted into quick cash.
It is always advisable to own more than one liquid asset and plan your investments accordingly to maximize your chances of turning the asset into quick cash. There are some common accounts receivables that can provide easy access to cash and manage your payments effectively.
A checking account is one of the more popular options in liquid assets and the account holder can transact using a checkbook or ATM card. Paying for everyday cash expenses can be very convenient with a checking account. The rate of interest is low in comparison to saving accounts and money market accounts. However, there are no restrictions on the amount and frequency of withdrawals with a checking account. You can access your money at any given time to facilitate debit card purchases, cash withdrawals, or cash transfers to other accounts. Common fees for facilitating transactions include maintenance fees and overdraft fees. Some banks waive the fees off as long as a minimum balance is maintained in the accounts while other banks can levy up to $15/month for account maintenance. Checking accounts also allow you to spend more than what you have with an overdraft facility. The median charge for using the overdraft facility is approximately $35 and varies depending on the bank authorizing the withdrawal.
While checking accounts facilitate your everyday spending, a savings account will simultaneously help you to build your nest egg. Funds in savings accounts are also insured by the Federal Deposit Insurance Corporation (FDIC) with amounts up to $250,000, making it one of the best choices among liquid assets you can own. Instead of keeping your money in your safe, invest it in a high-yield savings account to earn interest on the principal amount. Also, a savings account poses certain restrictions on the total number of withdrawals that can be facilitated in a month. The restriction is a blessing in disguise as you will resist the temptation to withdraw cash often and use a checking account instead to pay for all petty and planned expenses. Saving cash for the future ensures you have enough liquidity to fund expenses and pay for emergencies.
Money market accounts
These accounts provide a relatively safe way to invest and earn a high interest rate on the principal amount. You must, however, deposit a substantial sum of money and maintain a minimum balance for the entire tenure with the bank providing such facilities. Similar to savings accounts, most financial institutions insure money market accounts with the FDIC, making it one of the more popular alternatives when it comes to liquid assets. Pertinent points to consider include the annual percentage yield (APY), the monthly fees for account maintenance, and minimum amount of deposit, which will vary depending on the bank. Money market accounts ensure high liquidity in the long term.