What is Liquidity?

Liquidity is the ability to quickly convert an investment into cash. The more liquid it is, the faster you can access the money.

Types of liquidity

  • Daily liquidity (D+0): Money available on the same day. Ex: government bonds central bank base rate, CDs with daily liquidity.
  • Liquidity D+1: Available the next day. Ex: Some investment funds.
  • Liquidity at maturity: Can only be redeemed on the agreed-upon date. Ex: CDs with a term, tax‑exempt bank notes.

Liquidity scale

From most liquid to least liquid:

  1. Money in a checking account
  2. Government bonds / CDs with daily liquidity
  3. Investment funds DI
  4. CDs with a term
  5. Real estate funds
  6. Stocks
  7. Real estate

When liquidity matters?

  • Emergency reserve: needs daily liquidity
  • Short‑term goals (< 1 year): high liquidity
  • Long‑term goals (> 5 years): can give up liquidity for higher returns