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Understanding the Differences Between Savings and Investment
Posted on Wednesday, July 31st, 2024 | By IndusInd Bank
Everyone looking forward to secure their future financially must know the definitions of savings and investments. Savings, while crucial, may not be enough. There are arguments to be made in favour of investing by those focused on long-term goals.
But, what are savings and investment and how are they different?
Both savings and investment form important aspects of your financial planning. However, they are not independent of each other. To get an overview of both these terms, you may look at the term savings and investment in economics.
One way of defining savings is your income after your expenses or spending. However, investment in economics refers to physical investments rather than financial investments. However, if you look at these terms from a personal finance parlance, they can mean something different.
What are Savings?
Most people who earn, create some savings. There are several instruments you can use to create savings. A common one is a savings account. You can take a part of your earnings and park into a savings bank account after taking care of your monthly expenses.
What are Investments?
When thinking about saving vs. investing, one must realise the starting step for both looks similar – setting aside a part of your earnings for your future. Yet, the result could be different.
Investments are when you put your money, or your savings, into some financial instruments designed to alter its value over a period. Depending on the financial instrument, the amount put in, the risk level, and a few other factors, this investment may see growth or depreciation over the investment period.
Also Read: A Quick Guide to High-Yield Savings Accounts
Differences Between Savings and Investment – H2
Now that you understand the basics of what these two terms mean, here are the differences between savings and investments.
| Savings | Investments |
| Savings refer to the amount set aside from your earnings for the future. | The money put into financial instruments to achieve growth in its value over time is known as investment. |
| Usually, a saving bank account is used for saving money. | A variety of instruments are available for investments. Common ones are mutual funds, bonds, stocks, fixed deposits, and more. |
| Savings are liquid, and thus, more accessible in case of an emergency. | Investment instruments such as mutual funds, stocks, etc., are not completely liquid, and thus, not suitable as emergency funds. |
| The return on investment is not as high as some of the market-linked investments. | The return on investment is higher than traditional savings alternatives. However, the underlying risk is also high. |
| Savings contribute to one’s wealth creation steadily manner. However, some instruments do not offer interest rates to match inflation. | The capital growth is high and is suitable for long-term goals, especially account inflation risks. |
| Savings are considered a safe option for maintaining your wealth. | The risk associated with investments in financial instruments can make first-time investors be sceptical. |
To sum it up, savings can be your first step towards preparing for your future. The money you put into savings must be accessible and liquid and should not be prone to risks. Investments, on the other hand, ought to be weighed. These instruments can help you build wealth for your long-term goals.
Looking to create savings? You can choose from the savings account options offered by IndusInd Bank. With our digital approach, it is quite easy to initiate the online savings account opening process from the comfort of your home. All your savings needs are now digitally accessible.
Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.
