Go through any finance blog, and see the terms ‘saving’ and ‘investing’ used interchangeably. Can we say that saving and investment are the same? So, if they were to be the same, why do you need two different words? Therefore. Therefore, there is a difference between saving and investment. This blog explains the difference between the two.

How are ‘saving’ and ‘investing’ different from each other?

The most noticeable difference between the two terms is the level of risk involved in the activity. Saving is a low-risk activity. So, the returns on savings are low. On the other hand, investing involves taking many risks. Therefore, the returns are also high. 

The advantage of saving is that there is a low risk of default. One can say there is virtually no risk at all in saving. In contrast, the risk of default is higher in investing. So, either you make excellent gains or suffer losses.

To understand the differences better, let us see what saving and investing are.

  • Saving and investing involves putting away money for the future. 
  • The common goal is to accumulate money.
  • While saving constitutes putting the money in a bank or a chit fund platform like the Money Club, investment involves putting the money in the market in instruments like shares, debentures, mutual funds, gold, forex, etc.

Thus, you can see that the return on savings is less but guaranteed. In contrast, the returns on investment can vary. Investment can generate losses, whereas savings never do. 

This table can help you understand the concept better.

Characteristics Savings Investing
Type of Account Saving bank or chit fund Brokerage account
Instrument/Products Savings accounts, current accounts, term deposits, recurring deposits, etc. Shares, bonds, debentures, mutual funds, gold, forex, etc.
Tenure Usually short, but term deposits can be for up to ten years It can be for short terms, but long term investments are always better
Returns Low returns compared to investment. Returns can vary. It can be substantially higher than savings. But, simultaneously, there can be losses.
Risk Involved No risk unless the bank fails The risk can vary depending on your investment decisions.
Difficulty Easy to save It is more challenging because one requires adequate knowledge of the market.
Inflation protection Very little protection It has good potential to protect against inflation.
Expensive No It can be expensive because of taxing capital gains.
Liquidity Very high liquidity except for certificates of deposits Liquidity is high, but the returns might not be to your expected level.

    

Points to Ponder

  • While banks offer the best avenues to save money, different types of saving apps are available to help you save. The best savings apps India include Money Clubr, G-Pay, Amazon Pay, Bharat Pe, Chime, NiyoX, Thriv, Mint, etc. 
  • Similarly, different types of investing apps are also available. They include Groww, Upstox, ET Money, CashRich, Coin by Zerodha, etc.
  • Anybody can save, but investment requires one to go through a learning curve. 
  • You can judge your returns before you save because you know the interest rate. Secondly, there are no chances of fluctuations. 
  • In contrast, no one can judge the returns on investment before investing the money. You can evaluate the trends but never predict the actual returns because of the uncertainty.
  • Savings does not involve much cost because there is no brokerage involved. But, on the other hand, investment can be expensive because of brokerage costs, management expenses, capital gains tax, etc.  

Final Thoughts

Though the terms saving and investing seem similar, there are differences between the two. We have explained them clearly. We trust that we have clarified all your doubts in this matter.