You need two things to secure your life financially – savings and investment. By having them, you do not have to worry about money during planned and unplanned expenses. In short, financial security offers you adequate control over your life’s unforeseen circumstances. Savings and investing are two financial tools that can help you attain this. Let us explore the meaning and differentiate savings and investment!
What Does Savings Mean?
Savings refers to setting aside money instead of spending it, primarily for unforeseen and future expenses. It is a lump sum amount that remains accessible at any time. Therefore, keep it in a low-risk financial product with minimal tax implications.
What Does Investment Mean?
Investment refers to spending money to buy assets to achieve capital appreciation and meet long-term financial goals. This investment may experience growth or depreciation over time, depending on factors such as the type of financial instrument chosen, the principal amount, the level of risk, and other significant considerations.
What is the Difference Between Saving and Investment
Now that you understand the basics of these terms, it is time to explore the difference between savings and investment in the table below:
| Parameters | Savings | Investments |
|---|---|---|
| Purpose | Savings refer to setting aside a portion of your earnings for emergencies and future expenses. | Investments refer to allocating money to financial instruments to increase their value over time. |
| Liquidity | Savings are liquid money, so they are more accessible during an emergency. | Invested amounts come with low liquidity as instruments such as bonds, stocks, mutual funds, fixed deposits, etc., are not completely liquid. So, they are not considered as emergency funds. |
| Return on Investment | The ROI is lower than some of the market-linked assets but guaranteed. | The ROI is higher than conventional savings options but not guaranteed. The amount will fluctuate as the underlying risk is also high. |
| Risk Exposure | These products come with low risk as considered a safe option for maintaining your wealth. | These products come with low to high risk. The risk related to investments in financial instruments depends on multiple factors. |
The Final Thought
Savings and investment plays a vital role in your financial planning. Understanding the difference not only helps systematically manage your finances but also helps in wealth creation.
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