There are some questions that arise when discussing bank accounts, specifically if a bank account is an asset?
In this article we will go over the most important questions regarding bank accounts, and if they are considered an asset or a liability.
Is a bank account an asset or liability?
A bank account is an asset to the owner because it holds valuable financial assets that can be converted into cash.
Since there is a monetary value attributed to each bank account, it is an asset and should be accounted for when calculating your net worth.
However, for banks, bank accounts are a liability. This is because the bank is liable for the assets its client has in the bank account. For a bank when a customer creates an account that either holds cash, bonds, or even stocks it is considered a liability.
In essence, the bank is liable to its customers, because it just acts as a holder of the financial assets its customers have in their bank accounts.
Is a bank account a liability?
A bank account is an asset for the owner of the account, and it is a liability for the bank. Afterall the bank is liable for the sums deposited by its customers.
It is important to understand not only the distinction between assets and liabilities but also how an asset for one entity is a liability for another. In the same way, that bank accounts are assets for depositors, and liabilities for banks, it is very similar to loans.
If a bank concedes you a loan, this will be a liability. However, for the bank, your loan is an asset.
Is a bank account a current asset?
Yes, most bank accounts are considered current assets. Current assets are assets that are expected to be converted into cash over the next twelve months. Therefore a bank account that holds financial assets is a current asset.
However, if some of the assets you own in your bank account will be held for a period longer than twelve months then it is considered a non-current asset.
What type of assets can you hold in your bank account?
There are several types of assets that you may wish to own in your bank account beyond the traditional cash. Here are the main assets you can hold in your bank account:
- Mutual Funds
One of the most common assets to hold in a bank account is cash. You can either have it on a checking account, savings account, or even on a certificate of deposit.
Banks offer several investment solutions so you can receive interest on the savings you have, while still being able to use the cash in case you need it. This makes it easy to have cash readily available, or a liquid asset that you can access whenever you need it.
Bonds are another common financial asset to hold in your bank account. Whether they are government bonds or corporate bonds, they tend to be safe investments that pay a steady interest on your capital.
Stocks are one of the most common investment vehicles, and certainly the best performing asset class over the last 100 years. It is no surprise that many bank accounts hold stocks as well as cash.
ETFs have become one of the most popular ways to get diversified exposure to stocks. They continue to be an efficient and effortless way to invest, while still getting hefty returns. They are also extremely common assets held in bank accounts.
Although ETFs are clearly becoming more and more popular, many investors still hold mutual fund shares in their bank accounts. For years, mutual funds remained one of the most common investment options for retail investors. Although they are not as common today, there are still many investors that invest through mutual funds.
Is your bank account part of your net worth?
Your net worth should include all of the assets you own, and therefore a bank account should be included.
When calculating your net worth, you should make the distinction between liquid net worth and net worth. Your net worth will include all of the assets you own, including liquid and illiquid. However, your liquid net worth should include only liquid assets that you own.
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