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What is the Difference Between Savings and Investment?
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Saving and investing are important for establishing a strong financial base, which you should start right from when you start earning. Many people confuse savings with investing, but both are very different. The biggest difference between savings and investment is the risk level.
Saving provides comparatively lower returns but virtually no risk, whereas investing offers a much higher return potential but with risks involved. This article covers the key difference between the two and how these strategies can help develop long-term wealth.
What is Savings?
Saving means setting aside some money for future needs. People usually save money for both future purchases and emergency expenses. Many of us were introduced to saving money from the early stages of our lives when we used to put money in a piggy bank.
Instead of using an actual piggy bank, grown-ups use savings accounts and other saving schemes which earn interest over a period.
What is Investing?
What is the Difference Between Saving and Investing?
The following are the key difference between saving and investing:
|
Basis of Difference |
Saving |
Investing |
|
Definition |
Putting money aside gradually to save for various purposes like emergency expenses, buying a gadget, down payment for a car etc. |
Putting money into financial instruments such as bonds, mutual funds and stocks to help it grow. |
|
Goal |
To create a fund for unexpected expenses and also suitable for purchasing certain things. |
To establish personal wealth |
|
Risk |
High-risk |
Minimal risk or often zero risk involved |
|
Time Horizon |
Short-term |
Long-term (Usually 5 years or more ) |
|
Liquidity |
Highly-liquid |
Low liquidity compared to saving funds |
|
Accessibility |
Ready to access cash |
Have to wait longer to access invested funds |
|
Earning Potential |
lower returns than investments |
Much higher returns compared to savings |
|
Difficulty |
Easy |
Time-consuming |
|
Protection Against Inflation |
A little |
Good protection against inflation |
|
Account Type |
Bank |
Brokerage |
|
Type of Asset |
short-term assets |
Long-term assets |
|
Products |
Savings accounts, certificates of deposits etc. |
Mutual funds, stocks, bonds, real estate, gold etc. |
In conclusion, saving and investing are crucial to a healthy financial plan. While saving offers a way to fulfil short-term goals and a shield against emergency expenses, investing provides higher long-term returns and helps achieve long-term objectives. The most crucial difference between savings and investment is the return potential and the risk.
Each has its advantages and disadvantages; the key is finding the right balance for your financial status and goals. Balancing these two can help you build wealth and protect against unforeseen shocks.
FAQs About Savings VS Investment
How much of my salary should I save and how much should I invest?
Why is investing a complex process?
Should I prefer to save rather than invest?
Other Important Articles Related to Saving Schemes
Important Articles About Financial Planing
Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.