Savings vs Investments

At Invest for Next, we understand that most people are really confused about the fundamental difference between “saving” and “investing.” Most people believe that saving in fixed deposits, recurring deposits, and other such accounts would be enough for their entire financial life. Even though such ways of saving are safe and give assured returns, they are more oriented toward short-term financial goals. Usually, people save for a year or two and then withdraw the money with the notion that their financial future is secured. However, this approach makes them miss the benefits that come with compound interest.

What is Saving?

Saving is an instinct inhaled within the blood of all living creatures; many species save food for the period of drought. We do the same; we save money and resources for our future. In personal finance, saving means putting money into accounts such as a Savings Account, Fixed Deposits, or Recurring Deposits. It builds an Emergency Fund to meet short-term goals. Like the food stored does not grow in size, the money kept aside in these accounts does not grow into huge returns.

If you save hard-earned money in a savings account, FD, or RD, that is not going to give you substantial returns in the long run. Interest rates are pretty low on these options, and hence with it, the growth of your savings gets capped. So, for long-term growth, not only is saving indispensable, but looking beyond such traditional saving methods into investing also becomes necessary. It has the potential to attain higher returns through compound interest and market growth.

While saving is a critical part of financial security and meeting short-term needs, it cannot support such long-term goals as retirement or wealth creation. Understanding the limitations of savings and the possible investing alternatives will definitely bring about a much better financial future.

When do we need to Save ?

It is important to save for financial stability and to be prepared for rainy days. Listed below are some of the reasons that make a person engage in saving, especially for short-term goals, emergency funds, and low-risk investments.

These are short-term financial goals to be achieved in a few months or a few years. Examples could include vacation, payment for a new gadget, or even funding a small home renovation. Bank Fixed Deposits and Recurring Deposits would be the low-risk saving options for such goals. They have assured returns that will ensure your principal amount remains intact.

Another very good reason to save is that life has surprises, and many times, a financial cushion does help in case of an emergency—from health to losing a job or urgent house repairs. Indeed, experts recommend stashing three to six months’ worth of living expenses in some kind of very accessible, low-risk account, such as a high-yield savings account or a money market account.

Products such as FD and RD are pretty good for those who want to take very less risk on their money and generate steady returns. These instruments yield fixed interest rates and are mostly insured.

That means financial security is about short-term goals, emergency funding, and low-risk investments. Back all of these in very safe and most reliable channels—bank fixed deposits, recurring deposits, and high-yield savings accounts, among others—so that your money will grow with very little risk.

Why do we Invest?

It’s through investing that one gets to amass wealth in the long term and achieve high-order financial goals.

Financial Freedom: It enables you to shape your own financial destiny. Satisfaction from investing rightly and achieving your financial goals creates a feeling inside you that you are free from the money trap. This will give you time for other things you like doing and let you live life on your own terms.

While saving money is central, over time, slowly but progressively, it suffers purchasing power erosion due to inflation. Investing has the potential for growth that outpaces inflation, making it possible for money to grow on its own. Compound interest—earning interest on your interest—really makes a difference in how much you can save over time. In terms of building wealth and increasing net worth, one must invest. Compound returns from investments could be key drivers of growing any base principal invested significantly over the years.

Against Uncertainty: Life is full of uncertainties. Any unexpected expense or loss of job may completely derail your finances. Diversification of the investment portfolio works as a financial insurance system. A long-term view allows your investments to bounce back even when the market goes down.

Financial Goals: Be it the perfect vacation, the best education for your child, or a comfortable retirement— all these long-term financial goals are achievable through proper investments. You will be in a position to create wealth for yourself and secure your future by investing in various investment vehicles through a rightly chosen strategy.

Passive Income: Most investments can generate passive income, such as dividends from stocks, interest from bonds, and rent received on property. You’re getting another income stream in, which fuels your financial goals and improves your quality of life.

Investing involves some level of risk, but with proper planning and diversification, it may help an investor to achieve his financial aspirations.

Savings vs Investing: Comparison

Savings	Investing
Savings refer to the act of apportioning money for future use in easily accessible pockets with low risk.	Investing refers to putting the money in various financial instruments like stocks, bonds, or real estate with the intention of reaping higher returns in the future over some time.
It is chiefly for meeting short-term goals and going through any emergency situation.	It is focused on long-term goals and building wealth.
It is quite low-risk and makes sure the principal amount is safe.	Highly risky, but one can either incur gains or losses.
Relatively Low, Stable Returns through Interest.	Possibly high returns but with higher expected volatility.
Highly liquid and easy to access on short notice	Not as liquid, may incur penalty/ market risk in accessing
Savings accounts, money market accounts, certificates of deposit.	Stocks, bonds, mutual funds, exchange-traded funds, real estate.
Typically, do not provide the return necessary to off- set the impact of inflation	Typically surpass inflation, enabling the investor to both protect and grow their purchasing power.
Emergency funds, short-term financial goals, and capital preservation	Long-term financial goals, including retirement, wealth accumulation, and education funding.
Little growth potential—just protecting your money.	Huge growth potential via compound interest and market gains.

WARNING

When one thinks of savings and investments, one is bound to be besieged by insurance agents who are ready to trap one into insurance policies. But life insurance policies can never be termed a process of saving or investment, whether it be in the form of money-back plans, endowment plans, or any other such policy. Though it has a number of advantages, like risk coverage or assured returns, it is an insurance policy—not for creating wealth or as a short-term scheme.

Not for Savings or Investments: Life insurance policies are basically risk coverage instruments and not for pure savings or investment purposes.