Tuesday , October 19 2021


The terms savings and investing are often used interchangeably. However, that’s not the case. This article will focus on the differences between the two terms.

Why is saving important?

Following are some of the advantages of savings:

  1. Stepping stones to investing – Savings is what you are left with after deducting all your expenses from your income. You must look at expenses as residual rather than looking savings as residual. Out of the money saved, you should allocate a small portion of your corpus to liquid assets such as liquid funds or bank fixed deposits and the rest of the corpus should be assigned to long-term wealth creation.
  2. Emergency cushion – Savings are a necessity for addressing emergencies. Emergencies usually come unannounced. An individual might plan to start their own business, or a medical emergency could hit them or their family, or they could lose their job. In these circumstances, you need liquidity to fall back upon. Thus, it is always advised to keep aside at least 3 to 6 months of your income as emergency funds.

Importance of investing

Following are some of the advantages of investing:

  1. To attain your financial goals – Be it purchasing a house or your dream car, or paying for your child’s educational costs or marriage, or taking a world tour, or even your retirement, investing helps to meet your financial goals, big or small. Investing your money is one of the best ways to attain your long-term financial goals.
  2. To beat inflation – Investing helps to beat inflation. If you don’t invest and instead keep your wealth in a savings account, chances are your wealth will decline in purchasing power as inflation eats away the value of currency over time. To insure against such unfortunate situations, it makes sense to invest your money in investments that have the potential to fetch inflation-beating returns.
  3. To earn significant returns – Investment options such as stocks or mutual funds have the potential to yield higher returns than a regular savings account or fixed deposits.

Savings vs Investing

Let us compare Saving vs Investing:


  • Investing
  • Purpose
To achieve unplanned expenses or short-term goals Capital appreciation and wealth creation
  • Duration
It is ideal for a short tenure Investing for a longer tenure usually yields positive returns
  • Returns
Offers relatively lower returns Investing has the potential to earn significant returns
  • Access to cash
  • A savings account provides ready access to cash. However, several savings accounts limit how often an individual can withdraw their capital
Several investment options come with a lock-in period. However, there are a few types of investment that offer high liquidity like liquid mutual funds
  • Risk involved
  • They involve minimal risk.
  • Investments are subject to market risk
  • Typical products
  • Savings account, money-market accounts, CDs (certificate of deposit), etc.
Bonds, mutual funds, ETFs, stocks, etc.

Investments hold the key to your future. They help to bridge the gap between your dreams and reality. Now that you have understood the differences between saving and investing, create a financial plan today. Financial planning takes you one step closer to your goals. Happy investing!

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