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ESG
Your portfolio needs a mix of saving and investing, but what is the difference between the two? Let’s examine
Saving and investing is vital for establishing a solid financial foundation, but they are not the same. While both tools can help you build a secure financial future, it is important to understand the difference the two and know when to save and invest. The risk involved is the standout difference between a savings account, which is the best medium for saving, and an investment.
Choosing between the two is, therefore, a task. We are hoping the following differences between savings and investment can help you make the right choice.
What is the difference between saving and investing?
Here are a few key differences between savings vs investment:
- Savings accounts are often used to achieve short-term financial goals. A savings account can help if you want to buy a phone or go on a vacation. As for investments, they work better in the long run. The right investments can ensure your child's school, college, and wedding. Investments are also commonly used for building a corpus for retirement.
- The risk of losing money in a savings account is lower when compared to investments. Your funds are also eligible for interest in a savings account, which is an added benefit. Investment instruments cannot guarantee security as they are sometimes dependent on market conditions. However, investments in market-related tools can earn high returns. Striking the balance is the key, and hence, it is better to consult a professional before taking positions in the market.
- Savings account interest rates are substantially lower than the returns offered by fixed deposits (FDs). However, certain investments schemes offer better returns than FDs, especially in the long run. Hence, investments can offer higher returns than savings when evaluated over a longer time frame.
Savings accounts earn less return, but they are risk-free. An investment, meanwhile, allows you to earn a higher return, although there is more risk.
- Money in a savings account proves useful in emergencies. You have complete control over your funds in a savings account. You can take out the entire amount or a portion of it whenever you need it. Not every investment tool offers this feature. Your ability to withdraw money is regulated by the tool you have invested in. Certain tools, such as open-ended equity mutual funds, allow you to redeem any time. The capital gain is tax-free if the investment duration in an equity mutual fund scheme is more than one year. The Indian Government also offers a tax break for equity-linked savings schemes (ELSS) under section 80C of the Income Tax Act 1961.
- When inflation rises, the value of cash in the savings account decreases. Investments offer a hedge against inflation, keeping your net worth steady.
There are many differences between savings and investments, but these were the major ones. The right financial plan includes a mix of savings and investments. Leading banks, such as IDFC FIRST Bank, allow you to do both. IDFC FIRST offers interest rates of up to 7% on savings accounts. You can also invest in different investment tools through IDFC FIRST Bank.
From mutual funds to direct equity and FDs, IDFC FIRST Bank can help you form an inflation-proof investment portfolio in a single click!
Disclaimer
The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.