Savings account and investing - your guide to good financial health

Savings and investments are two critical instruments for growing wealth consistently, over time.

However, maintaining the balance between these two can get difficult for first-time investors who wish to make long-term investments and have liquid cash in hand at all times.

What are the major differences between saving and investing?
 

Investors often regard savings and investments as complementing one another. However, individuals who wish to save and invest must know the important differences between the two activities before starting their savings or investment journey:

• Both actions require an individual to open a different type of account:
  
  

  An individual can open a savings account to start saving on a regular basis. Banks help customers open a bank account online to help them save more. IDFC FIRST Bank’s digital savings account helps customers open a savings account via a paperless account-opening procedure through the video KYC (Know Your Customer) process. On the other hand, individuals must open a Demat account to gain access to most forms of investment.   

• Savings and investing offer different categories of returns:
  
  

  A savings account generally offers lower returns when compared to most investment products. The returns earned through investments could be low or high depending on the risk associated with them. Certain categories of mutual funds – small-cap funds, for example – pose a high risk to investors and have the potential to offer higher returns. Investments like fixed deposits (FDs), on the other hand, pose a lower risk and offer moderate-level returns.

• Investments can be riskier as compared to savings:
  
  

  Savings accounts are a much more stable alternative for an account holder. Certain categories of investments, on the other hand, pose a very high risk to the investor, with these investments offering much higher potential returns as compared to the returns accumulated by a standard savings account interest rate. Individuals must decide on an investment objective and conduct a risk assessment of their investment portfolio before taking any investment-related decision.

• The expense involved in both activities differs:
  
  

  Mutual fund investors, for instance, could be required to pay an expense ratio charge or an entry/exit load fee based on the fund in which they have invested. Savings accounts, too, charge several fees from customers in lieu of providing savings-account related services. These fees include NEFT/RTGS/IMPS charges, SMS alert charges, and cheque book re-issuance charges. IDFC FIRST Bank’s “Zero Fee Banking” feature waives 28 such charges, helping the customer save more through their savings account. 

When to save and when to invest to maintain good financial health?
 

Here is a stepwise procedure that individuals can follow to maintain the right balance between their savings and investments:

1. Opening a high-yield savings account online:

For the first step, individuals should identify a high-interest rate savings account and must prioritise accessibility while choosing it. IDFC FIRST Bank’s mobile banking app helps customers access all banking services 24/7 and also helps them start online investments in no time!

2. Building an emergency fund:

The next step involves preparing for emergencies. An individual must have an emergency fund worth three-to-six months’ income so that they can access liquid funds during an unforeseen financial emergency.

3. Fixing an investment objective and assessing one’s risk appetite:

After building an emergency fund, an individual must fix their investment objective. An investment objective is the short or long-term goal towards which an individual’s investment is geared. It could be saving for an upcoming wedding in the family or planning for a vacation abroad. One must also assess one’s risk-taking capacity to shortlist investments that are better suited for them in the earlier stages. IDFC FIRST Bank’s online SIP calculator can help investors estimate their mutual fund returns on the date of maturity.

4. Investing in an investment scheme consistently:

The fourth step involves investing consistently in the selected investment scheme. Investing through SIPs can help investors develop an investment discipline that can help them grow their returns considerably.

5. Reassessing one’s investments regularly:

Finally, one must constantly reassess their investments to check if they continue to align with their investment objectives.
Using financial calculators such as IDFC FIRST Bank’s online SIP calculator can help individuals plan their investments and decide on the right investment amount and tenure, thereby helping them save more. 

Disclaimer

*IDFC FIRST Bank offers Zero Fee Banking on ₹ 10,000 Average Monthly Balance (AMB) Savings Account and higher account variants, subject to maintenance of AMB in the account. These services are being offered free in good faith, and in case of abuse, the bank reserves the right to charge fees as per market norms. All rights reserved.

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.