What type of asset is a savings account?

The money you keep in your savings account is an asset. A savings account is a safe, highly liquid asset you can use to park cash you don't need for everyday expenses, to save for a big expense or financial goal, or to build wealth. Savings accounts are easy to set up and earn some interest as well.

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Last Updated: 06/21/2022

Your parents probably taught you from an early age that saving money is a good thing. So you understand the importance of saving money.

But keeping your money under your mattress or buried in the backyard is not a good approach to saving money.

A savings account is a safe, income-producing asset. And building assets is one key to creating wealth and financial security for yourself and your family.

Table of Contents

• What Are Personal Assets and Liabilities?
• What Kind of Asset Is a Savings Account?
• Opening a Savings Account
• What’s the Point of a Savings Account?
• How Much Money Can You Put in a Savings Account?
• How Much Money Should You Keep in a Savings Account?
• Can You Have Too Much Money in Your Savings Account?
• Is a Savings Account Worth It?

What Are Personal Assets and Liabilities?

Your personal assets are the cash you have on hand and the things you own you can convert to cash. Assets include your checking and savings account balances, stocks, your home, and your valuables. Your liabilities are what you owe others, such as credit card debt, student loans, and your mortgage.

Your net worth is calculated by subtracting your liabilities from your assets. A positive net worth means you have more assets than liabilities, while a negative net worth means you owe more than the value of your assets. Your net worth will fluctuate over time.

What Kind of Asset Is a Savings Account?

A savings account is considered a liquid asset. Liquid assets are things you own which you can quickly convert to cash. Cash on hand offers the most liquidity, followed by the money you can withdraw from your checking and savings accounts.

It’s important to understand that savings accounts are considered a cash equivalent, but they’re slightly less liquid than actual cash or checking accounts. The federal government created a rule, known as Regulation D, preventing more that 6 transfers or withdrawals from your savings account. The rule helps ensure that banks have sufficient reserves and consumers use savings accounts for their intended purpose: saving money.

Opening a Savings Account

My parents opened a savings account for me with $20 when I was 3 years old. I still maintain that account to this day and it’s never gone below that $20 opening balance. If you don’t have a savings account, now is a good time to open one.

To open a savings account, create the account online or visit a bank or credit union branch in your area. You’ll provide your name, address, and contact info. You’ll need a photo ID and your Social Security Number, because savings accounts pay taxable interest.

Some banks require you to make an initial deposit when you open your account. Others allow you to open the account, then put money into it later. You can make your first deposit with a transfer from another account, by mail, by depositing a check through the bank’s mobile app if the bank has one available, or by visiting a branch in person.

You typically don’t need much money to open a savings account. Many banks have low or no minimum deposit requirement to set up your account.

What’s the Point of a Savings Account?

The point of a savings account is to have a place for money you want to separate from the money you use for bills and other regular expenses. Your savings account is liquid, insured, and earns interest. So savings accounts are good for saving for a rainy day, a major purchase, or a long-term goal.

How Much Money Can You Put in a Savings Account?

You can put as much money as you want in a savings account. Your account balance is only insured by the FDIC up to $250,000, however. If you are holding more than $250,000 in a savings account, splitting your balance across more than one bank, credit union, or account holder would be prudent.

How Much Money Should You Keep in a Savings Account?

As a general rule, you should keep three to six months’ worth of living expenses in your savings account for emergencies, such as a job loss or unexpected medical bills. That will act as a buffer so you don’t have to rely on credit cards or personal loans to get by during a financial emergency.

Can You Have Too Much Money in Your Savings Account?

It is possible to have too much money in your savings account. If your balance is over $250,000, the excess isn’t insured in case of a bank failure. Also, since a savings account pays such a low interest rate, you’ll miss out on earning the better returns and really growing your money by investing.

Is a Savings Account Worth It?

A savings account is worth it. A savings account is an asset anyone can easily acquire. Accumulating assets is how you build your net worth, reach your financial goals, and generate wealth. Savings accounts are easy to open, they’re liquid, and they’re safe since they’re insured by the FDIC or NCUA.

That doesn’t mean you should keep all your cash in a savings account, however. Putting all of your available cash in a savings account wouldn’t be the best financial decision.

Savings accounts are insured up to $250,000, but reimbursement for any amount over the $250,000 cap wouldn’t be guaranteed in the event your bank collapses. You might also prevent yourself from achieving higher returns and significant growth since the interest paid to savings account is low.