- July 5, 2021
Savings vs. Investment: Know which is better for Your Personal Finance
There is no exception to managing personal finance as it is the only way to maintain spontaneous liquidity within a family. While maintaining liquidity is the sore need of every person. In that case, a systematic savings plan opens up the way of investment.
However, intermediate investors often fail to achieve the financial goal because of the lack of knowledge about a different savings plan.
As a result, they drop the plan of investment and opt for only savings. Now, there is no use in only keeping money in the bank account until the fund is channelized to an investment. As you never know exactly how much money you will require during a financial crisis.
Often we have seen many people being bankrupt and they have to borrow installment loans for bad credit from direct lenders only. This is because of the inadequacy of funds. Invest the bulk of the fund in a certain investment plan while minimizing the chance of financial crisis. On the other hand, keeping the fund in the locker or bank account may not fulfill the required amount.
Undeniably there is a huge difference between investment and savings. Here we will discuss which one is better for your savings or investment? Before we start, let us know briefly about savings and investment.
What is savings?
Keeping money aside for the future refers to savings. It is a process of preservation through which a person can easily discriminate between:
- How much money does he require for the expense?
- How much for savings?
Usually, everybody keeps only that amount in the form of savings he left in hand after completing all the expenses.
A person can save money in different ways, like keeping funds in a bank account or a home locker or using a piggy bank. However, all these medium of savings offers spontaneous liquidity. As a result, one can access his saved fund as soon as possible during a financial crisis.
What is investing?
It is also a means of savings but quite different from the general preservation of funds. Investment is such a process of preserving money by setting a goal and keeping the fund for a certain period in a particular savings plan. It is completely goal-oriented, and one can achieve his financial goals if he invests money accordingly.
A main criterion of investment is the timespan. According to financial advisors, if one investor keeps the money for a long time without having a sudden withdrawal plan, it will be a fruitful investment. Generally, investing is an option that can earn you a good return if you agree with the lock-in period.
Therefore, investing is strongly associated with time span, and for this reason, many people avoid this concept. However, by investing money, one can enjoy more than his invested amount. But it should also be remembered that the act of investment is also associated with risk.
Benefits of savings
- Keeps on liquidity –
One of the most attractive benefits of savings is liquidity. When a person keeps unused funds in the house or the bank account, he can easily access the fund on the same day of requirement. One needs not to wait for a long to get hold of his saved fund.
- Earns little interest –
Why most people like a savings bank account instead of investment? Perhaps you are thinking about this. Actually, some special types of savings account offer an extra rate of interest on the available fund. Therefore, an account holder can enjoy the benefit of both enhanced principles while maintaining liquidity.
- Not associated with risk –
Savings is a type of investment that is not at all associated with risk because you can get hold of your fund at any time. There is neither any stipulated period nor any savings plan linked to the market. Therefore, a person can enjoy stress-free savings.
Benefits of investing
- Ease of good return –
The main purpose of investment is to enhance the principal amount. It is associated with good returns for which investors take an interest in such a mode of savings. It is like using money to earn more money. To enjoy a high return, one should always run for investing money.
- Minimizes the scope of borrowing –
It has been observed that people who invest in different schemes possess a minimum tendency of borrowing. Investing is strongly associated with goals. So, when you invest money to fulfill a need, it can be easily achieved without direct laying hands to direct lenders of the UK.
- Save money on tax –
Investment is strongly intertwined with tax benefits. By means of investing money, a resident of the UK can enjoy up to 20% discounts on tax. Apart from earning extra on principle, one can also secure expenses while paying tax. That is why many people opt for investment.
- Secure more with compound interest –
Compound interest is something that denotes new interest over the current interest rate. It is not difficult to understand how much good a return one can earn easily through compound interest. This is something only applicable to different investment schemes, especially on market-linked plans.
Savings vs. Investment
- Growth factor –
When it comes to the matter of savings, there is no possibility of growth. Although some banks provide a minimal amount of bonus in the form of interest, a particular amount of funds is kept in the account. However, there is no scope for doubling money or growing funds.
On the other hand, with investment, a person can add growth factors to his fund. Growth is something that is the sore need of every investor. Money invested among different valuable instruments like mutual funds, stocks, bonds, and life insurance to enjoy the good profit.
- Risk factor –
By opening a savings bank account, one can minimize the risk of losing hold of his fund. The bank is such a financial intermediary that it is always liable to refund money to account holders under any circumstances. Therefore, the risk factor is completely zero when one chooses savings out of investing.
On the other hand, investment is such a means of saving money strongly associated with risk. However, clever strategy and brief knowledge can drive out risk factors from investment. Besides, it is also undeniable that high-risk-takers can earn high returns.
- Achieving goal –
Although people try to achieve financial goals by keeping money in a savings account, one is incapable of achieving the heights most of the time. Due to ease of withdrawing money at any time resist a person from achieving his goals.
On the other hand, investment is totally goal-oriented. Whenever you visit a financial advisor, he will always ask you about your upcoming goals. As based upon the goals, he will decide how to channelize the fund and for what time. Therefore, through investing, a person can easily achieve his financial goal.
- Minimizes borrowing –
When it comes to the matter of borrowing habits, savings can minimize it. Saving money for the future which can be accessed at the moment of crisis can resist a person from borrowing loans like provident debt. One can easily pay emergency medical bills by using his saved fund, so there is no requirement of borrowing money. It is the most convincing reason why you should go for savings instead of investing.
On the other hand, investment can enhance your borrowing habit. How? For instance, when you keep a certain amount of money, say for 5 years, there is no procedure for accessing money between these 5 years.
There is no surety that you may not feel the requirement of the fund at any time in between those lock-in periods. If you need badly fund, then there is no other option left without borrowing money from lenders.
Thus, there is no usage of investing money.