What is the Difference Between Savings and Investment?

What is Savings?

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? up-arrow

The amount to put towards savings vs investment depends totally on your current financial situation, needs and future goals. You should keep aside three to six months of income in the savings fund. You should prioritise saving this amount of money first before starting any investment.

Why is investing a complex process? up-arrow

There are several reasons why people struggle to invest. The most common reason is a lack of knowledge of the investment market, which leads to wrong investment decisions. Also, sometimes people fear the risks involved in investment. However, it will not seem complex if you can gain a clear idea of the market and invest patiently.

Should I prefer to save rather than invest? up-arrow

Some people choose to save rather than invest. One of the most common reasons is the fear of losing money. People feel a certain sense of security by putting aside some of their money for unexpected emergencies. However, savings do not offer much returns. So, to grow your wealth over time, you should have the proper balance of saving and investing in your financial strategy.