Assets might sound like a fancy word, and they may seem like something only rich people have. But the truth is almost everyone has a few assets to their name. Let’s take a look at what assets are, whether checking accounts are considered assets and why assets are important.
If you’re looking for ways to grow your wealth by getting it out of your checking account and into better investments, consider speaking with a financial advisor to create a plan.
What Is an Asset?
An asset is anything that holds financial value. An asset is often defined as the opposite of liability, which is money you owe.
Assets can be liquid or illiquid. A liquid asset means that it is either cash or can quickly and easily be converted to cash, like a bond. An illiquid asset means that it will likely take a while to convert to cash and the cash value might fluctuate, like a home.
Assets can include cash, jewelry, cars, homes, stocks, retirement funds, fine art and a variety of other items. They can even include intangible items like a company’s trademark or a patented idea.
Is a Checking Account an Asset?
If you have money in your checking account, it’s considered an asset. If your account is empty or overdrawn, it’s not considered an asset, but rather a liability.
On a small-scale example, let’s say a checking account holder just has two checking accounts. One has $1,000 in it, while the other is overdrawn by $50. The checking account with a $1,000 balance is an asset, while the checking account with -$50 is a liability.
Looking on a bigger scale, high-net-worth clients keep a lot of assets in multiple places, possibly up to $250,000 in checking accounts as well that are insured by the Federal Deposit Insurance Corporation (FDIC). And depending on what some high-net-worth clients want to do with their assets, they may choose to divide up their assets between multiple checking accounts that are insured by the FDIC.
Why Do Assets Matter?
Assets matter because they’re part of your net worth. Having a positive net worth is a great sign of financial health and security. Net worth is simply defined as all of your assets minus all of your liabilities.
So, let’s say you own a car worth $10,000, a checking account with $1,000 in it and a savings account with $5,000 in it. You also owe $50,000 in student debt. So, add up all of your assets: your car’s value and your account balances total $16,000. Now subtract your student debt. Your net worth is -$34,000.
Don’t be disheartened if your net worth is negative. Your net worth will often grow over your lifetime with smart financial decisions and a bit of luck. Let’s say in 20 years you decide to total up your net worth again. At this point in time, your assets are a car worth $15,000, a checking account with $5,000 in it, a savings account with $20,000 in it and a home worth $200,000.
You also have a mortgage with a remaining balance of $113,000, which is a liability. Add up your assets and subtract your liability and now your net worth is $127,000. If you can pay off debts and begin saving and investing your money wisely, your net worth can go from negative to positive quickly.
Since an asset is cash or something that can be converted to cash, a checking account is considered an asset as long as it has a positive value. If your checking account is overdrawn, you owe your bank or credit union money, which makes it a liability. When you add up your assets and subtract your liabilities, that number is considered your net worth.
Tips to Help you Choose the Right Type of Bank Account
- A financial advisor can provide further guidance on selecting the right retirement account and applying it to your personal situation. If you don’t have a financial advisor, finding one doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. And if you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you don’t have any money in the bank, a savings account is a good place to start. They’re simple and your money will work for you by earning interest. Look for a savings account with the highest interest rates. There more you can earn, the better! Online banks usually offer higher interest rates than physical banks so you might want to consider an online bank vs. a traditional bank.
- The best savings and checking accounts have minimal fees. Find an account that costs very little to start and has a minimum balance requirement. Understand any fees the bank charges because fees can cost you a lot in the long run. To get you started, here are six bank fees and how to avoid them.
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