Which Type Of Account Typically Has Low Liquidity?

published on: March 24, 2021 last updated on: September 4, 2021
Which Type Of Account Typically Has Low Liquidity

Which type of account typically has low liquidity? These are self-evident questions that are coming from almost 70% of the investors. High liquidity accounts are those accounts from which you can easily take away the money without giving any extra charge or extra fees. These high liquid accounts do not have any withdrawal limit and time. So at any time from any cash limit, you can withdraw cash from your accounts. So what are less liquid accounts?

What Are Low Liquidity Accounts?

What Are Low Liquidity Accounts

Saving accounts and money market accounts are highly liquid accounts. And a Certificate Of Deposit is an example of low liquidity accounts. We are going to analyze the factors of low liquid accounts like a CD. 

When you are applying for the CD, you agree with the government’s terms and leave your money to the banks for a limited time frame. And the bank has set a timer for your money, so the banks can charge something as a penalty charge. Or they can apply a withdrawal charge when you want to withdraw. These types of accounts are very low liquidity.

Even the accounts which have a low liquidity rate can simply wipe out all of your interest within a short period of time. Most of the low liquidity accounts are paying a higher-yielding rate. And high yielding rates mean you are availing of the higher interest rate. If you want to make a profit out of the low liquid accounts, you can complete the terms of the banks along with the period. Then the chances of making a profit are increasing.

The Disadvantages Of Low Liquidity Account

The Disadvantages Of Low Liquidity Account

Certificate of deposit is offered by the Banks and leave your money to the banks on the basis of some terms and conditions. Which type of account typically has low liquidity? This is a very common question from the investors, but you have to know the cons of the low liquid accounts.

  • These all low liquidity accounts money can not be withdrawn easily. 
  • Banks can impose withdrawn charges against your money withdrawal. You have to complete your period then you can withdraw the cash.
  • You have to maintain your time span strictly.
  • The withdrawn charges are high.

The Advantages Of Low Liquidity Account

The biggest advantage of the low liquidity account is your payable tax. The government tax is always applicable on the liquid account. If you want to secure your future by saving some money, low liquidity accounts are the best option.

Many investments are highly liquid in respect to the other types of retirement investment. Mutual funds, stocks, bonds, etc., are highly liquid. If you are planning to invest in these, you are getting accounts that are highly liquid. 

Which type of account typically has low liquidity? Most of the investors do not understand what types of accounts are really liquid. And if you think all the investments are low in liquidity, then here is a list of types of investments along with the category.

  • Bonds (Not Liquid).
  • Mutual funds (Liquid).
  • Real Estate (Not Liquid).
  • Land And Property (Not Liquid).
  • ETF (Liquid).

Liquidity Ratios

Businesses use liquidity ratios to assess their asset’s liquidity. This helps them to measure their financial health. There are three types of liquidity ratios businesses use. In includes: 

  • Current Ratio: This ratio is calculated by dividing the company’s current assets by its current liabilities. The current ratio determines whether the company can pay its short-end debts from the money received by selling the assets.
  • Quick Ratio: Quick Ratio is similar to the Current Ratio, but instead of using Company’s assets, it uses only cash, accounts receivable, and stocks/bonds as assets. In this ratio, the company cannot add any assets which will be sold off. Thus, the number of total assets less inventory divided by liabilities.
  • Cash Ratio: As the name implies, this ratio is all about cash divided by the current liabilities. This ratio shows how capable a company is of paying off its debts in the form of cash.

Wrapping Up

Investments are always interesting among the people who are thinking about their future. In the long run, investments are not always highly liquid. Some investments are not liquid and if you want to invest in low liquidity accounts first, you have to know which type of account typically has low liquidity? The following types of investments are the best example of low liquidity accounts. If you think our article helps you understand the nature of the low liquidity accounts, do not forget to comment back to us.

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