5 min read
Updated on Jul 13, 2022
In this day and age of never-receding inflation, it is very important to understand how an investment plan differs from a savings plan.
We are always saving money so that we can buy things and also use them during emergencies. The purpose of saving money is normally to have money when we need the same. It also helps that such money has little risk that it would lose its value. It is very important to monitor your savings by putting a timeline or deadline within which you would like to achieve the goals that you have in this context. There is also a need to attach value in this regard.
Let us say that you are saving money so that you can take your family on the vacation that you go on every year. In that case, you have to decide the time within which you would want to save the money and the amount that you would need for the same. This way, you would be in a position to withdraw that money when you go for the vacation with your family. In this case, you know all the variables – the amount of money you need, the amount that you need to save each month, etc.
When you are investing it is important to be as wise as you can be in this regard. This is true even when you have gone for the best investment plans out there. You can be sure that the earlier you start to invest the better your returns will be. If you wish to be successful with your investments you need to understand the different options that you have in this regard especially the purposes that they serve. You need to know the way to use them the best to fulfill your goals.
To begin with, the biggest area of difference between the two is in the extent of risk that you are taking with each of them. The risk is always higher with the investment vehicles and this is applicable even when you are going for the best investment options out there. However, when you invest in savings options such as savings accounts, CDs (certificates of deposit), and money market accounts the risk levels are a lot lower. But, the gains in these cases are minimal compared to what you can make from the investment plans.
When you are saving money you can withdraw that money whenever you need it. In some cases, you need to wait a bit before you can do so. On the other hand, when you are putting your money into an investment option you have the chance to make a lot more money. However, there is also a good chance that you may lose your money. So basically by investing your money you are taking a big risk for major financial gains. This is why you must review the goals that you have in this regard so that you can find out which one is the most appropriate as far as achieving your goals is concerned.
If you choose the wrong one time investment plan you would not be able to fulfill your goals at the very least. Apart from that, you would lose a lot of money on charges and fees along with what you have invested. You could also earn far less than what you may have originally envisaged in this case.
These two options also differ from each other in terms of the money that you can make from them – the interest that they provide you with.
People normally go for short term investment plans – as well as long-term ones – to earn a lot of money from the same. On the other hand, they save money so that they can use it when they need it. They know that in these cases the returns would be minimal.
As far as savings tools go, CDs are a popular option. They are available in both short and long-term variants.
You can put money in them for a few months or even for several years if that suits you. In the long term, they can be continued for at least seven years. No wonder this is perhaps the most sought-after savings plan in India. Over here, the interest rate that you get on your deposits would be a bit higher than in the case with a normal savings account. However, there is a period before which you cannot withdraw your money without incurring penalties and fines for the same. Always compare the various options you have in this regard before you choose any one so that you get the best interest rate.
This is the age of inflation where everything is getting expensive even as we speak. You may want to save money to meet your future goals without taking any risks. However, you can be sure that with the rate of inflation progressing, the money you have saved would amount to little by the time when you try and fulfill the goals for which you started the process. This is why you need to choose an investment plan so that you can fulfill the major goals you have in life with ease.
In the end, it can be said that you should not waste time in either saving or investing. Choose the investment plan that you think would be the most appropriate option for you. Right now you might have time on your side to invest your money and grow it so that you can meet the goals that you have in life. When you start early you can start investing with a small amount. In fact, this is applicable for saving your money as well. This way, you can also be on the path to reaching the goals that you have in this context.
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