What is saving?

Saving is placing money aside for a rainy day. You may have a specific goal in mind, like saving up for a down payment on a house, or you may want to build up your regular savings plan account, so you have a cushion in case of tough times. Whatever your reasons, when you save money, you’re not risking it – you can always access it whenever you need it.

What is investing?

On the other hand, investing is taking a risk with your money. You’re betting that by investing in certain stocks or funds, you’ll see a return on your investment. If things go well, you can make a lot of money. But if the investment goes south, you could lose everything you put in.

Benefits of savings

Security

Having money saved gives you a sense of security – you know that you have a cushion in tough times.

Control

When you save your own money, you’re in control of what happens to it. You can choose where to invest and how long to keep it invested.

Flexibility

With savings, you can easily access your money whenever you need it. There are no penalties for withdrawing your funds early, and most banks offer flexible withdrawal policies.

Tax breaks

In many cases, the government offers tax breaks on savings accounts, making them a great way to save money.

Earning potential

Many savings accounts offer interest rates that are higher than the inflation rate. It means that your money can grow over time, even if you don’t touch it.

Benefits of investing

Higher potential returns

When you invest your money, you have the potential to make a lot more than if you just saved it. You could see 10%, 20%, or even more returns depending on the investment.

Diversification

Investing in various stocks and funds helps to minimize your risk. If one of your investments goes wrong, you still have others doing well.

Automatic reinvestment

Many investment accounts offer automatic reinvestment, which means that any profits you make are automatically put back into the account so that you can continue to grow your investment.

Low fees

Many investment accounts have low fees, which means you keep more of your profits.

Tax breaks

Like with savings accounts, the government offers tax breaks on many investments. It helps you save even more money.

Risks of savings

Low returns

The interest rate on a savings account is usually lower than the inflation rate. It means that your money is losing value over time.

Limited growth

Since you can only withdraw your money without penalty at certain times, your savings account may not grow as quickly as investments that offer reinvestment.

Fees

Saving accounts often have fees associated with them, which can eat into your profits.

Accessibility

If you need access to your money immediately, you may have to pay the penalty to withdraw it from your savings account.

Loss of purchasing power

Inflation can cause the value of your money to decrease over time, even if you don’t touch it.

Risks of investing

Volatility

The stock market is volatile, and this means that investments can quickly go up and down in value. It can be risky for investors who need to access their money right away.

Loss of principal

There’s always the risk that you could lose the money you invest, primarily if you invest in a high-risk investment.

Fees

Investment accounts often have fees associated with them, which can eat into your profits.

Taxes

Investments are often taxed at a higher rate than savings, so you may not see as much of a return on your investment as you would like.

Complexity

Investing can be complex, and it can be challenging to know which investments are suitable for you.

Which is better: saving or investing?

If you are looking for a safe place to park your money and you’re not comfortable with the idea of risking it, then savings may be a better option for you. But if you’re willing to take a chance to make a lot of money potentially, then investing may be the way to go.