What Are The Difference Between Investment And Savings Plan?
Updated On Mar 08, 2022
We save for purchases and emergencies. Saving money typically means it is available when we need it and it has a low risk of losing value. It is important to track your savings, putting a deadline, or timeline, and value to your goals. For example, if you are saving for your annual family vacation, you might want to target $3,000 to save in nine months to withdraw at the end of the year. You then know how much you need, how much to save monthly, and the ability to take the money out without fees to spend on that treasured vacation.
When investing, it is important to invest wisely. You will have a better return if you begin investing early. Understanding different investment vehicles, what they are for, and how to use them is imperative to being successful. We invest for long term goals, such as our children’s college fund or retirement. We use specific vehicles that allow for growth. If our children have 10-plus years before they go to college, we can invest monthly in a vehicle like an education savings account (ESA) or a 529 plan. These allow for withdrawals when your child goes to college. Long-term college plans can help you successfully reach that goal.1
1. To start, the biggest and most influential difference between saving and investing is risk. You save when you put money into a savings account like a money market account or Certificate of Deposit (CD).23 It has little risk of loss of funds but also has minimal gains. When you save, you are usually able to pull that money out when you need it (or after a period of time). When you invest, you have the potential for better long-term gains or rewards, but also the potential for loss.
2. You risk more in investing for a larger return, but your potential loss can be large as well. It is important to review your goals to figure out which option is best for each one, saving or investing. Choosing incorrectly could cost you a lot of money in fees or loss of potential income earned through investing.
3. Another difference is interest, or money made. In investing, we want our investments to make us money, while the goal of saving is to keep our money safe, making very little return.
4. A CD is a popular savings tool. This tool can be relatively short-term, ranging from a few months to many (seven or more) years. While in the CD, your money is safe and grows at a slightly bigger interest rate than in a regular savings account, but accessing it before the term of the CD is over could mean paying fees and penalties. Make sure to find the best rate on a CD by comparing options from a number of institutions.3
5. It is possible to be a wonderful investor, have growth in your 401(k), and have investment properties, but be unable to make ends meet because you do not understand how to save your short term funds. You can save money each month, but long term, those savings will not pay in retirement and most likely will not pay for your children's college, making investing equally important. This should remind us how important both are, especially when done together.
In the end, do not wait to save or invest. Time is the greatest opportunity to grow your money and to meet your goals. With a relatively small amount of money, you can start investing and saving and get on the path to reaching all of your financial goals.
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.