Difference Between Savings and Investment

Savings vs Investment
 

Saving and investing are both equally important to individuals and businesses. Savings are usually done to achieve short term payment goals and needs and are low risk in nature. Investments are made with the aim of making larger profits and, therefore, involve bearing higher levels of risk. The article that follows explains both the concepts of saving and investing and shows how they are quite distinct to one another.

Savings

Saving is the manner in which funds are put away for safe keeping or for use on a rainy day. Savings can also be maintained for a number of reasons such as for the purposes of purchasing a home, for college, to purchase vehicles, for travel, for retirement purposes, etc. Money that is saved is usually kept in a safe place, and will usually be kept in a bank savings account in which there is no risk with the benefit of receiving interest income. Savings can also be put in other places such as building society accounts, money market accounts, and certificates of deposit. Most banks encourage individuals to save funds by offering higher interest rates on their savings accounts. This is because, the more consumers save, the more funds banks and financial institutions can give out as loans.

Investment

Investing is the act of using funds to purchase assets or to commit funds to a particularly chosen investment vehicle. The aim of making an investment is to obtain a larger financial gain at the time the investment matures or when the assets are sold. Investments are riskier than saving in that the investor might end up making a large profit or ultimately be left with nothing. Investment vehicles include shares, bonds, ETFs, mutual funds, trusts, etc. Investing is aimed at achieving longer term goals since the period of maturity for many investments are for the long term rather than the short term. Many people tend to prefer to invest their funds in some way as they believe that the return that can be obtained through an investment is much higher than any return that can be obtained by keeping the funds stagnant (even if it’s kept in an interest earning savings account).

What is the difference between Savings and Investment?

Saving and investing are concepts that are closely related to one another since they both go hand in hand. Individuals tend to save their income for short term use such as to pay for an upcoming expense or to have funds that they can easily access in case of a financial emergency. Investments, on the other hand, are made to earn larger profits and are usually kept for a longer period of time. Savings offers a smaller income than investments since the risks with saving are much lesser than with investments.

Summary:

Savings vs Investment

• Saving is the manner in which funds are put away for safe keeping or for use on a rainy day.

• Investing is the act of using funds to purchase assets or to commit funds to a particularly chosen investment vehicle.

• Individuals tend to save their income for short term use such as to pay for an upcoming expense, whereas make investments to earn larger profits and that are usually kept for a longer period of time.

• Investments are riskier than saving in that the investor might end up making a large profit or ultimately be left with nothing.

• Savings offers a smaller income than investments as the risks with saving are much lesser than with investments.