Although savings accounts aren’t traditionally seen as a method to growing your wealth, they do offer a unique, and important function.
However, since savings accounts don’t grow on their own beyond the meager interest paid by the bank, you may be wondering – is a savings account actually considered an asset?
In this article, I’ll cover everything that you need to know!
Is A Savings Account An Asset?
Yes. A savings account is considered an asset, and the funds within it contribute to your total net worth.
This is similar not only to a checking account, but other asset classes like stocks, bonds, and the equity in your home.
So, when calculating your total assets, be sure to include any funds held in savings accounts in your calculation!
Note that because savings accounts are considered an asset, there are some things you may want to know about it – such as how they will affect your ability to get a loan, what can happen if you have unpaid debt, or what can happen to your money in the event of a court judgement against you.
For more information on savings accounts, keep reading!
What Kind Of Asset Is A Savings Account?
The money held within a savings account is considered to be a liquid asset, due to its immediately available nature.
Liquid assets are assets that can be immediately liquidated, or converted to cash in a quick period of time. Considering that savings accounts just hold money, they are about as liquid of an asset as they come!
Other examples of liquid assets include stocks that can be easily sold, bonds, money market accounts, and of course, other bank accounts (such as money held in checking accounts.) Precious metals in your possession that can be easily exchanged are also considered a liquid asset.
Illiquid assets are assets that cannot be easily and immediately exchanged for cash. Some examples include your home, businesses that you own, or rare collectables.
Illiquid assets are often traded below their true value when they need to be sold quickly, as there is often either low demand, a low buyer pool, or significant work involved with the selling of the asset.
For more information on liquidity of assets, watch this brief video explaining it futher!
How Do Savings Accounts Differ From Checking Accounts?
This is an excellent question! After all, since you can hold money in a checking account just fine, it’s common to wonder what the point of savings account are at all.
Truthfully, the benefits of savings accounts today are almost entirely psychological.
In the past, savings accounts used to offer significantly higher interest than checking accounts, rewarding you for keeping extra money in the accounts. However, today the interest of savings accounts is much lower, with the average being just 0.16% – far below inflation.
So, since the interest is hardly worth considering anymore, the real benefits of a saving account is that it can encourage you to save.
Savings accounts may limit the number of transactions you can do per month, require notice in advance before withdrawing funds, or even charge a fee any time a transaction is done.
All of this may help you think twice before pulling money out of it.
So, savings accounts can be a great way to build up an emergency fund of savings. It’s an asset that’s completely liquid, and you can access the money in a pinch should you need to do so.
Can A Savings Account Be Garnished?
Yes, funds held in a savings account can be garnished, similarly to a checking account.
So, if you have a judgement placed against you, this money can be garnished just like any other bank account – holding it in a savings account does not make it exempt.
So, you should keep this in mind if you believe that you are at risk of garnishment.
How Much Money Can You Have In A Savings Account?
Currently, there is no limit to the amount of money that you can keep in a savings account.
There are a couple of things you should be aware of, however.
First of all, even at FDIC-insured institutions, you are only insured up to $250,000. So, if saving more than $250,000, it may be wise to open separate savings accounts at separate banks.
Secondly, keeping an excessive amount of money in a savings account is not considered to be a good financial decision by financial experts.
This is because there are other asset classes – like bonds, CDs, and treasury inflation-protected securities (TIPS) that offer very low risk, but have a much higher return that the interest you’d earn keeping the money in a savings account.
(After all, banks make their money by using your money to invest in other things.)
As mentioned earlier, the average interest rate paid by savings account is under a quarter of a percent. Meanwhile, the average inflation rate between 1960 and 2021 was 3.8% per year.
This means your money actually loses value as it’s stored in a savings account!
Technically speaking, a savings account is considered to be a liquid asset – and will be treated as one both by the bank, as the government.
So, you shouldn’t hesitate to consider your savings accounts funds to be part of your net worth!
I hope that this answer has answered all of your questions. If you have any other questions about savings accounts, please ask them using the comment form below and I’ll be happy to help.
Wishing you the best,
– James McAllister