If you’ve just started earning, you might have questions like ‘what is saving and investment?’ or ‘should I save my income or invest it?’ Understanding the difference between savings and investment can help you find answers to these queries and create optimised personal finance strategies to build an emergency fund and a corpus of wealth over time.
Savings refer to the funds you set aside to meet future expenses or tackle emergencies. In India, people save by depositing funds into a bank account or fixed deposit scheme to interest over time. You can save for various reasons, like funding a vacation, buying a car, or creating an emergency fund to help you in tough times.
Investing refers to parking funds in assets like stocks and bonds that will help grow your money through capital appreciation. While investing comes with a higher risk quotient than savings, it also offers the possibility of higher yields. Most people use goal-based investment strategies to meet long-term financial goals, like buying a house or building a retirement corpus.
The following table sums up the differences between savings and investments.
Based on these savings and investing differences, it is clear that both are valuable building blocks of an air-tight financial plan. While you can fall back on savings for short-term goals and emergencies, investing can help secure long-term goals and build wealth over time. That said, the risk aspects of each also differ greatly. You can find the right mix between the two by evaluating your financial goals, risk appetite, and income. If you need help, you can always rely on an expert like Fi Money.
Make sense of your personal finances instantly with Fi Money. You can go online & open a Federal Bank zero-balance savings account in 3 minutes — via the Fi Money app. Next, get all your money questions answered by Ask Fi, an intuitive personal finance assistant. Regularly use the app, as it encourages you to build better monetary habits, meet all your money goals & reward you for making significant financial choices. Fi helps categorise your daily, weekly & monthly expenses to manage your money online easily — so you spend smarter...not less. If you upgrade to other account plans within Fi — you get access to premium features like Jump, US Stocks, Mutual Funds, etc. & not to mention up to 4x rewards!
Saving money is to store it away until you need it, while investing refers to the purchase of assets with a desire to earn profits and grow your wealth.
Typically, savings bring you low returns against zero risks, while investments come with higher risks and a potential for higher returns.
Common savings vehicles in India include savings bank accounts, FDs, and RDs, while stocks, bonds, mutual funds, and ETFs are common investment vehicles.
Understanding the difference between savings and investing can help you better manage funds and design a better financial plan.
You can choose between the two by assessing your current needs and future goals. For instance, if you don’t have enough saved to cover 3-6 months' worth of expenses, it's best to prioritise that over investing for long-term goals. If you have an emergency fund in place, you can start investing.
