Savings refers to that part of disposable income, which is not used in consumption, i.e. whatever is remained in the hands of a person, after paying all the expenses. On the other end, Investment is the act of investing the saved money into financial products, with a view of earning profits. It alludes to the increase in capital stock.
Comparison Chart
| BASIS FOR COMPARISON | SAVINGS | INVESTMENT |
| Meaning | Savings represents that part of the person’s income which is not used for consumption. | Investment refers to the process of investing funds in capital assets, with a view to generate returns. |
| Purpose | Savings are made to fulfill short term or urgent requirements. | Investment is made to provide returns and help in capital formation. |
| Risk | Low or negligible | Very high |
| Returns | No or less | Comparatively high |
| Liquidity | Highly liquid | Less liquid |
Definition of Savings
Savings are defined as the part of a consumer’s disposable income which is not used for current consumption, but rather kept aside for future use. It is made to meet unexpected situations or emergency requirements. It makes a person financially strong and secure. There are several ways through which a person can save money like, accumulating it in the form of cash holdings, or depositing it into the savings account, pension account or in any investment fund.
Definition of Investment
The process of investing in something is known as an Investment. It could be anything, i.e. money, time, effort or other resources, that you exchange to earn returns in future. When you purchase an asset with the hope that it will grow and give good returns in the coming years, it is an investment. Present consumption should be foregone to obtain higher returns later.
Key Differences Between Savings and Investment
The basic differences between savings and investment are explained in the following points:
- Savings means setting aside a part of your income for future use. Investment is defined as the act of putting funds into productive uses, i.e. investing in such investment vehicles which can reap money over time.
- People save money to fulfil their unexpected expenses or urgent money requirements. Conversely, investments are made to generate returns over the period that can help in capital formation.
- With an investment, there is always a risk of losing money, unlike savings, where the no or comparatively fewer chances of losing hard-earned money.
- Undoubtedly, the investment provides higher returns than savings, as there is a nominal interest rate on savings. However, the investments can earn more money than the invested amount, if invested wisely.
- You can have access to your savings anytime because they are highly liquid, but in the case of investment, you cannot have easy access to money because the process of selling the investments takes some time.