Difference between Savings and Investment

Wealth building plan is important for ensuring a secured financial future. When it comes to financial terms, savings and investment are often used interchangeably, but these two are actually different terms.

An investor before making any kind of investment should know the basic difference between saving and investing. While both of them are essential for a secured future, the way they function are totally different.

Both savings and investment play an important role in shaping our financial strategy. Knowing when to save or invest is crucial in your financial journey.

Savings Meaning

Savings is referred to as that part of income which is not used for consumption, it is the act of keeping aside money that is required for later use.

In other words, savings can be defined as an amount that is left after meeting all the expenses from the disposable income of a person.

Investment Meaning

Investment is the process of buying an asset that is acquired with the purpose of generating income over a long period of time. Investment is done to generate wealth. Investment is done with the savings and offers greater returns.

The main purpose of investing is to create capital appreciation and investment can be done through instruments such as bonds, shares, mutual funds, etc.

Let’s discuss the most important points of difference between savings and investment.

Basis of Comparison

Savings

Investment

Type of Account

Savings Account

Brokerage Account

Type of Return

Fixed Return

Fluctuating rate of return

Goals

Short term

Long term

Risk

Low risk

High risk

Return on Investment

Low returns

High returns

Liquidity

Savings have high liquidity

Investment have low liquidity

Protecting against inflation

Offers little protection

Investments offer greater protection from inflation.

This concludes the article on differences between savings and investment. To read more of such interesting concepts on Commerce topics, stay tuned to BYJU’S.

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