Are Checking Accounts and Savings Accounts Considered Assets?

It’s important to keep a close eye on your available cash — you never know when an emergency might crop up that requires immediate funds. That’s why checking and savings accounts are such vital assets.

Your bank accounts are just one type of asset. It’s also prudent to know the value of your combined assets to come up with your net worth. Net worth can be calculated by subtracting your assets from your liabilities, and it’s a key factor in your future. First let’s take a closer look at why your checking and savings accounts are vital tools, then discuss how they relate to your other assets.

Why a savings account is important

Your checking account is used to handle all your day-to-day living expenses. Money gets deposited and withdrawn regularly and, in most cases, you probably don’t earn any interest.

The funds in your savings account, on the other hand, are probably going to sit there for a while. Saving money in this account is meant to act as your emergency fund and/or as a means of saving for other financial goals, like a big vacation or a down payment on a house.

Ideally, you will have three to six months of savings for emergency funds held back in case of disaster. If you lose your job, get sick, or have some other financial catastrophe, your emergency fund should help you through that rough patch. Hopefully you’ll never need it, but it’s smart to have it.

Significance of easy access

It’s good to know your funds are safe, but a savings account is also an important asset because it’s so readily accessible. In the event of an emergency, that money is available immediately with your ATM card or a quick transfer.

For example, if you choose to invest all of your surplus cash rather than park it in a savings account, it could take a few days to liquidate some securities and have those funds in your hands. There can also be penalties associated with liquidating certain assets before their maturity dates, such as certificates of deposit (CDs) or savings bonds.

Optimize your savings account

While it’s true that savings account interest rates aren’t great and you’re never going to make a pile of money from simply saving money, it’s still worth shopping around for the best interest rate you can get. Look for banks and credit unions, particularly online, that offer a high-yield savings account that could get you up to 1% interest, or perhaps a bit more.

In your search, you will want to look into possibly getting an account online. Because online banks have lower overhead costs, they can typically offer more competitive interest rates. Be aware of hidden fees or other restrictions, however. Many of the best rates you find will only apply for an introductory period, may only be good for your initial deposit, or are only applicable up to a set amount.

Keep in mind also that high-yield accounts often come with minimum balance requirements. If you do need to make a significant withdrawal, you could be subject to monthly maintenance fees if you don’t maintain the minimum balance.

Compare the savings accounts below to get the best savings account for your spending habits and savings goals.

Assets vs. liabilities and net worth

If an asset is anything with monetary value, such as a savings account or checking account, what is a liability?

A liability is basically the opposite of an asset in that it describes everything you owe. This could include the mortgage on your house, credit card debt, student loans, or car loans. Thus, you subtract your liabilities from your assets to come up with your net worth.

Types of assets

There are several ways to explain your personal assets, but they generally fall under the categories of either tangible or intangible and liquid or fixed.

• Tangible. Tangible assets are something you can see or touch, including cash on hand, houses, boats, cars, jewelry, or art, to name a few.
• Intangible. These assets are valuables such as stocks, bonds, mutual funds, pensions, or retirement accounts that you can’t actually hold or see, per se.
• Liquid. Liquid assets are the most readily accessible and include cash, or cash equivalent such as your savings or checking accounts. (Those are the most liquid of assets because they can be retrieved immediately.) Also included are assets that can be sold and quickly turned into cash, such as stocks and bonds.
• Fixed. Fixed assets are less liquid and generally take longer to convert into money, like real estate, art, and antiques. This category would also cover long-term investments such as IRAs, pensions, or retirement accounts. These accounts take time to access and come with significant penalties for early withdrawals.

The importance of an asset inventory

It’s critical to know exactly what you own and the value of each asset, some of which depreciate over time (like a car) and others that appreciate (such as a house).

This can help you assess your personal finance position and also assist you in protecting the valuables you own. Here are a few of the many reasons assets matter.

Retirement

If you don’t have a retirement account yet, you should run out and get one right now. You are never too young to start saving money for retirement. Arguably, retirement savings is your most important asset because it will earn interest and generate income when you’re no longer collecting a paycheck.

Insurance

Knowing the financial value of your belongings is critical to protecting them with the proper amount of insurance such as in the event of a natural disaster or a robbery. Cars, real estate, jewelry, art, and antiques should all be insured for safety and security reasons.

Personal loans

Your valuables can also be useful if you need to get a personal loan or another type of financing, such as a home equity loan. A financial institution (like a bank or credit union) is more likely to give you better interest rates and loan terms if you can show you have extra money to fall back on to make your payments should you lose your job or suffer another type of financial emergency.

You may also be in a better position to put up an asset for collateral on a loan, which can further increase your chances of loan approval.

FAQs

If I earn interest on a savings account, is it taxable?

Any interest earned on deposit accounts is considered income, thus you will have to pay taxes on it. This includes your checking and savings accounts as well as money market accounts. You will also earn taxable interest on CDs, corporate bonds, and certain dividends.

Why is the interest rate so low on my savings account?

Other than the limited number of withdrawals you can take from a savings or money market account per month, they are very flexible financial tools. This makes them ideal for building your emergency fund or saving money for other financial goals, like a new car or a European vacation.

The drawback to the ease and the liquidity of these types of bank accounts is that they earn less interest than more restrictive savings instruments, such as bonds and CDs, or other investments.