Savings and Investment - Is there a Difference?

Savings and investment are considered to be more or less same. People may give you reasons that investing your funds into something is like saving your money, and savings may be converted into investment at any time. But is this actually this way? Or savings and investments are delusional?

Savings are a part of your disposable income which is not used for consumption. It is the amount you are left with after you have paid your expenses. Whereas; Investment is the act of investing the money you saved into financial products in order to earn profit. Savings helps you decide the level of investment you can make.

Here is your guide to understand these terms better and know is there any difference between savings and investment? 

The concept of savings-

Savings is the part of income that is not consumed; rather it is kept aside for further consumption. People save money to meet the unpredictable situations or emergency situations. It makes you financially strong and secure. There are various ways through which a person can save money, like; accumulating in the form of cash, depositing it into savings accounts, pension account or any investment fund.

Your savings leads you towards a wealthy portfolio, and your savings depend upon your income and expense level. The more the income, the more you can save. The rise in income increases the propensity to save and decreases the propensity to consume. You need to be strong willed to save your hard earned money, and this depends upon your desires, financial background etc.

You put your savings into the safest place or product which allows you to access your money at any time easily. At some banks and savings and loan associations, your money may be insured by the Federal Deposit Insurance Corporation (FDIC). There is a tradeoff for the security and ready availability of these savings methods; your money is provided a low wage.

The concept of Investment-

When you invest something, it is called investment. You can invest your time, energy, time, effort or any other thing that you exchange to earn future benefits and profits. Even when you buy an asset, considering it will grow and give you returns, it is an investment. You need to limit your present consumption to het higher returns in future.

You make an investment with the purpose of wealth accreditation, be it in the form of appreciation in capital, interest earnings, dividend income, rental income or any other way. You can invest in stocks, bonds, mutual funds, commodities, options, currency, deposit account or any other securities or assets.

Investment is more about luck; you can either lose your money, or earn more with the same mode of investment. It is productive in nature and thus helps the economy of the country to grow.

With investment comes a risk. The money you invest in securities, mutual funds, and other similar investments is not federally insured. You can even lose the amount of money you have invested in, even if you purchase your investments through bank. But it also gives you an opportunity to earn more money than you can earn when you save.

Factors on which Savings is different from investment-

The points below list the factors on which savings is different from investment-

·       Savings means to set aside a part of your income which is not consumed for future use.

Investment means to invest your funds into productive uses which can help you earn money in future.

·       Savings are done to meet the unexpected situations or urgent money requirement.

Investments are made to generate returns over a longer period that can help in capital formation.

·        Savings have a lesser chance of losing the hard-earned money.

In investment, there is always a risk of losing the money you have invested.

·       Savings have nominal rate of interest and does not provide higher returns.

Investment can reap you more money if you have invested your money wisely.

·       Savings are highly liquid and you can use them any time.

In investment, you cannot have access to money as selling the investment takes some time.

·       Savings provide you no or less returns.

Investments provide you comparatively high returns.

Conclusion-

Savings only accumulate your funds, and thus cannot solely result in increase of your wealth. You need to put your savings into some productive vehicles to have a better financial portfolio. You can channelize your savings through investment, where there are various vehicles to invest your earnings. Risks and high returns are associated with investment, but there is no profit without any risk.

Make sure that you do your share of savings and investment in correct proportion to help the economy grow, because excess of both, saving and investment is bad for economy. Excess of savings over investment will result in unemployment, whereas excess of investment over savings will lead to inflation.