Saving vs. Investing: Which is Better for Generating Wealth

27 Jul 2022

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Comparing savings and investments is like comparing apples and oranges. While they are both fruitful to your financial wellbeing, they are both very different concepts. Despite this, the two terms are often used interchangeably.

This can lead to a lot of confusion, especially for those who have just started earning and are thinking about accumulating funds for their future goals. Keeping this in mind, the following article will pit saving vs investing head-to-head to see how they compare to each other and the different financial goals they can fulfil. Let’s go!

What is saving and investing?

Saving money usually refers to a simple form of wealth accumulation, such as putting away money in a bank account or a fixed deposit. On the other hand, investing refers to the purchase of certain assets such as stocks, gold, land and so on in the hope that they will appreciate over time.

What is the difference between savings and investments?

Saving and investing are quite similar because they both help you achieve a comfortable financial future. Therefore, it is equally important that you do both. However, they are not the same.

Let’s look at some key points of difference between these two financial concepts to understand when it is best to save and when it is best to invest.

• Risk & return:

This is perhaps the most significant difference between saving and investing. Investments are subject to market risks. Hence, generally Investments may result in burgeoning returns over the long term, but also carry higher risk and volatility especially in the short term,. On the other hand, savings instruments usually offer lower yet predictable or guaranteed returns and are thus considered safer than investments.

• Objective:

Investments are usually geared for long-term goals such as your retirement, the purchase of a house or to cover the cost of your child’s education. Savings can also serve these objectives. However, since they offer conservative returns, it would take much longer to build the corpus of funds required to meet these goals. Therefore, savings are better suited for short-term financial goals, such as your daily and monthly needs. A secondary objective of savings is to ensure you are financially prepared for financial emergencies as well.

• Protection against inflation:

Since savings instruments usually offer lower levels of returns, they do not offer much protection against inflation. On the other hand, investments offer much higher returns and can help you effectively combat inflation especially from a long-term perspective.

• Liquidity:

Investments such as gold and land offer lower levels of liquidity. Other investment instruments such as mutual funds while liquid may entail penal charges if you liquidate them before a predefined / maturity date. Savings, on the other hand, are usually highly liquid instruments. That’s why they are better suited for short term financial goals and financial emergencies.

Investing vs saving, which is better?

Is investing better than saving, which is more important, should I start saving first or should I invest my money instead – these questions can seem really confusing, but the answer is simple. Both savings and investing are equally important, and you need to do both if you want to secure your financial future. Doing one without the other could lead an imbalance in your personal finances.

You also need to remember that neither investing nor saving is better in all given circumstances. The right choice between the two ultimately depends on your current financial situation. If you need funds for short-term goals, you should start saving. However, if you need funds for long-term goals, it is better to start investing. And balancing both can help you successfully achieve your short and long term financial goals.

How to save effectively:

Saving money is easier said than done. With mounting expenses and rising inflation, setting aside money every month can seem like a daunting task. However, it is extremely important that you get into the habit of saving money, even if it means starting with small amounts. This is because small amounts saved periodically can snowball into a large amount of money over time.

Creating an emergency fund should be your first savings goal. This is a corpus of funds equivalent to 6 months or a year’s income. It will be your safeguard in case you lose your source of income or become incumbent due to illness or injury. Next up, you can start saving for short-term goals such as an annual vacation, a new smartphone and so on. Recurring deposits are a great way to meet these goals. They act as a sort of forced saving that will help you tuck away money every month.

Saving instruments are generally very safe, so you don’t really have anything to worry about on that front. What you should look for is better returns! Choose your savings instruments wisely, go for higher returns so you can maximize your earnings.

How to invest efficiently:

Do your research on the various investment options and pick the ones that suit your needs best. When you do find the right investment instruments, remember to start small and build on them over time. Keep in mind that investments carry varying levels of risk and return. Therefore, it is important to diversify your investments as per your risk appetite, investment horizon and disposable income. Don’t put all your eggs in one basket!

Another thing to remember is that investments can be volatile in nature, especially over short periods of time. That’s why it is important to stay invested for at least 3-5 years before thinking about pulling the plug on any of your investments. This also means that you should only invest money you won’t need during that time frame, else you might have to withdraw your funds prematurely in case of a financial emergency.

Lastly, remember to read all the terms and conditions before investing. Make sure you are aware of all the charges and fees involved before committing any of your funds. The last thing you want is to be blinded sided by some hidden costs that eat into the value of your investment or reduce your returns.

Conclusion:

To save or invest. This is a dilemma that many individuals face. So, fret not if you are deliberating on similar lines, as you are not alone. Just remember that both are crucial for your financial wellbeing. Therefore, if you have not started either doing either of them, it is prudent that you do so immediately.

You can consider opening Bank of Baroda saving account to start tucking away money for your future needs. You can enjoy interest rates up to 2.75% on your funds. You can also choose from numerous other savings instruments such as fixed deposits, recurring deposits, and many others that offer even better interest rates.

And in case you are looking at Investing, Bank of Baroda offers a variety of Investment products and solutions including Mutual Funds. Open an Investment Services Account by visiting your nearest branch and get access to appropriate Investment products on the go, through the bob World mobile application.

Get in touch today to know more.

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Saving accounts features

What are the features of a savings account?
A savings account is the first step a person takes toward saving. As the name suggests it is a place where the savings are stored but it is not an investment.
The savings account is the conduit through which investments can be made. But the first step starts from taking the money out of your money box and into a bank.
Why have a savings account?
Rather than keeping money at home in your money box, keeping it in a bank is suitable as it offers interest on the deposit made. This is the main reason why you have a savings account. The interest rate is not high, but it helps in partially softening the blow of inflation. In other words, the money one deposits in the bank are working to give you some return. Not only is the money in the savings account safe and earns interest it has other advantages also.
Features of a savings account
The following are the features of savings account

First, the money can be withdrawn at any point in time. With ‘Any-Time-Money’ (ATM) counters available across the country, a saving bank account holder who has debit/ ATM card facility can withdraw money from anywhere in the country. This adds a safety element where the depositor need not move around carrying cash in his pocket.
With e-payment on the increase, the saving bank account helps in regular monthly payments like that of electricity, society maintenance, telephone and mobile bill payment, insurance premium payment among others.
Salaries can be directly credited to the savings bank account. This helps both the employee as well as the employer. For the employer with a single click of the button, money is transferred to all the employees. For the employee, they are saved the travel to the bank as well as can have the money credited in their account at a faster pace.
Post-retirement the same savings bank account helps in getting a regular pension.
Loans that a person takes are generally linked to the savings bank account which is the primary account where his salary is deposited. Direct electronic instructions can be given from the savings bank account or Post Dated Cheques (PDCs) from this account. Savings bank account often eases the process of availing loans.
Cheque bounce history of the customer’s savings account tells his creditworthiness. A customer with no defaults on loans on his name has a much higher credit rating and finds it easier to get loans.
Having a savings bank account encourages the habit of saving rather than keeping cash in hand. This discourages impulsive shopping.
Savings account helps in accessing other financial instruments like online trading, mutual funds investments through direct transfers among others.
A standing instruction can be given to the bank where if the amount in the Savings Account crosses a particular threshold it will be transferred to any other higher yielding instrument.
It helps in making travel plans easier by booking tickets as well as hotel bookings through online mode.
The passbook or electronic statement of the savings bank helps in keeping an automatic tab of where the money came from and where it was spent.
At the end of the year, it helps in filling your tax returns with the income tax authorities. Since all the transactions are recorded in the bank statement, a salaried employee has the little hassle to file his returns.

Savings Account- Features and Benefits

A savings bank account is the most basic bank account available. It is an account that allows you to pool in your finances and manage them. The funds are available to be withdrawn at any time. With the different needs and requirements of the customers, banks have begun offering different kinds of savings accounts to meet these different needs. Some types of savings accounts are:

Regular savings account
Salary accounts
Kids savings account
Womens Savings account
Institutions, Government savings account
Basic Savings Bank Account (BSBD)
Senior Citizens Savings Accounts
Rural Savings Accounts/ Jan Dhan accounts

Here are some features of savings account:

A savings account comes with a passbook and cheque book feature
You can receive payments and make payments from your savings accounts
Auto debits and auto credits can be set up from your savings accounts
Savings bank account holders can access internet banking and mobile banking for their needs
Banks offer ATM cum debit cards to savings bank account holders
A savings bank account earns low interest rate but allows the customer the freedom to withdraw funds at any time subject to a limit on monthly withdrawals.
It is possible to pay bills from your savings account
Banks also send transaction alerts to their customers via SMS and email

What are the benefits of a savings account?
While a savings account has a lot of utility, it only earns interest at 3.5% to 6% per annum. In such a case, are there any benefits of having a savings account? The answer is yes. There are many benefits of opening a savings account. Let us consider them.
Here are the benefits of having a savings account:
Liquidity
One of the benefits of opening a savings account is that it offers you liquidity..
Safety of funds
A savings bank account is a safe avenue to keep your funds rather than keeping it on hand where it is susceptible to get lost or stolen. Another important point to remember is that each account is insured by the Deposit Insurance and Credit Guarantee Corporation for up to Rs. 1 lakh.
Additional earnings because of auto sweep facility
Most banks have an auto sweep facility where funds above a particular limit are automatically converted into a fixed deposit. These funds earn interest at fixed deposit rates as compared to regular savings rate. By enabling this feature, the depositor can get full benefits of keeping money in a savings account.
Automatic debits for payments
Banks allow customers to set up automatic debits for utility payments and bills. In such cases, the utility company or telecom company raises a demand with the bank and the bank automatically debits the bank account. This is a convenient way to make payments on time. When you take a loan, you can set up an auto debit facility from your savings account where the installment will get debited from the savings bank account and
Auto credits for investment incomes
One of the benefits of keeping money in a savings account is that it can be linked to a demat account and other investments. In such cases, the income from dividends and interest gets automatically credited to the bank account. This convenience ensures all incomes get pooled in one account.
Convenient fund transfers
It is extremely simple to make fund transfers from a savings account. There are different modes of a fund transfer which are easily available in both internet banking and mobile banking. A savings bank account holder can transfer funds using NEFT, RTGS, IMPS and UPI.
Joint accounts
There are benefits of a joint savings account. Having a joint account provides greater flexibility since all the joint holders can sign cheques and operate the bank account. It makes it easy to track spends and incomes. A joint account can be maintained for household incomes and expenses which is excellent for financial planning.

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