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What is the Difference Between Savings and Investment?

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?

Investing is a strategy to build wealth over time by increasing it in financial instruments such as real estate, bonds, stocks, and mutual funds. Investing involves some risk, but it can also generate higher returns over a certain period compared to saving. It is a way of achieving your long-term goals, such as saving for retirement, buying a car, or saving up for a course you want to enrol in.

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?

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?

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?

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.

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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.