In the world of finance, understanding the difference between savings and investment is a very important first step for you especially when you want to manage your money wisely. Although at first glance they look the same because they both involve saving money, savings and investments actually have very different functions, risks and goals.
Understanding the difference between savings and investment will help you determine the financial strategy that best suits your needs and future goals. Many people are still confused about when to save and when to start investing.
Therefore, Treasury has summarized the meaning of savings, investment, as well as the five most fundamental differences between the two. In addition to improving financial literacy, this article can help you make more effective and purposeful financial decisions. Let’s take a look at the full article!
What is Savings?
Savings is a sum of money that you set aside and store, either in a bank account, or in a conventional place such as a piggy bank, with the main purpose of keeping the funds safe and providing easy access whenever needed. Savings are often used to meet short-term needs.
The advantage of savings is that they are liquid, or easily accessible at any time. However, the safety of savings depends on where you keep it. Generally, savings interest is relatively small and often unable to beat inflation. Even so, savings are still important in financial planning.
Savings are not intended to generate significant wealth, but rather to maintain your financial stability in the short term. Savings also provide a sense of calm and flexibility in dealing with urgent conditions. Savings can be the initial foundation that needs to be built before you start investing.
What is Investment?
Investment is the activity of investing funds in an instrument or asset with the hope of making a profit in the future. Unlike savings which tend to be passive, investment is active because its value can increase or decrease depending on market conditions, time, and the type of instrument chosen.
Some forms of investment include gold, stocks, bonds, mutual funds, property, digital assets. The main goal of investment is to increase the value of wealth in the medium to long term. Through the right strategy and patience, investment can provide much higher returns than savings interest.
However, you need to understand that investment also carries risks. The value of assets can go down due to market fluctuations or other external factors. Therefore, before you start investing, you need to understand your personal risk profile, long-term financial goals, and the characteristics of each investment instrument.
1. Financial Objectives
One of the most basic differences between savings and investments lies in the objectives. Savings are generally intended for short to medium term needs. For example, emergency funds, monthly shopping, or unexpected needs such as medical expenses. Savings provide a sense of security as the money can be withdrawn at any time.
Investments, on the other hand, are intended for long-term goals such as retirement funds, children’s education costs in the future, or the purchase of large assets. Investments have the potential for higher value growth, but come with the risk of market fluctuations. Therefore, investing requires more careful planning and patience.
2. Risks Faced
Another point of difference is the level of risk. In this case, the difference between savings and investment is very pronounced. Savings are generally placed in banks and guaranteed by deposit insurance agencies, so there is almost no risk of loss. Your money remains intact even though the interest received tends to be small.
Investment, on the other hand, involves market risk. The value of assets can go up and down depending on economic conditions, inflation, or even government policies. For example, the price of a stock or mutual fund can drop sharply in a short period of time. However, with that risk also comes the opportunity for greater returns than savings interest.
One investment that has high returns but low risk is gold. Gold has been proven to be able to maintain the value of your assets from various economic crises and inflation. The price of gold also tends to increase every year. Therefore, many people use gold as savings because of its low risk.
Also Read: Gold Savings: Definition, Benefits, and Advantages of Smart Investment for the Future – Treasury
3. Liquidity and Access to Funds
The difference between savings and investment can also be seen from the level of liquidity. Savings have high liquidity, meaning you can withdraw money at any time through ATMs, mobile banking, or tellers without a complicated process. This is a big advantage for urgent fund needs.
On the other hand, investments are not always easy to cash out. Some types of investments take time to sell or the disbursement can take several days. Some even have a certain period of time, such as time deposits or bonds, which cannot be withdrawn before maturity without penalty.
In contrast, gold investment has high liquidity. You can sell gold at various gold shops without having to depend on a certain time. Especially in today’s digital world, digital gold offers the convenience of transacting anywhere and anytime only through applications on smartphones, such as Treasury.
So, if you need quick and flexible access to funds, savings are more suitable. But if you are ready to hold funds for a certain period of time for more optimal results, investment can be an option. Again, this is where the difference between savings and investment becomes an important consideration.
4. Rate of Return
Many people are tempted to invest right away because they want high returns. However, keep in mind that the difference between savings and investment is also about the returns you get. Savings offer a relatively small fixed interest rate, usually below inflation. This means that the value of your money can shrink over time.
In contrast, investments have the potential to provide much higher returns, especially in the long run. Gold, stocks, property, or mutual funds can provide annual returns that are higher than average inflation. However, these returns come with volatile fluctuations and require a proper strategy.
The difference between savings and investment in terms of returns can be taken into consideration to adjust your expectations. Don’t expect savings to double your money, but don’t expect investment to be risk-free either. A balance between the two will result in a stronger financial strategy.
5. Instruments and Platforms
Finally, the difference between savings and investment lies in the instruments and platforms used. Savings are generally limited to bank accounts, deposits, and other forms of deposits managed by banking institutions. The process is easy, safe, and can be done anytime.
Investments have more diverse instruments, ranging from gold, stocks, bonds, mutual funds, to property. The platforms also vary, from securities, digital applications, to investment marketplaces. This requires a deeper understanding and education so that you do not get trapped in fraudulent investments.
Therefore, it is important for you to recognize the difference between savings and investment so that you don’t choose the wrong financial product. Each instrument has unique characteristics, and understanding how they work will make you more confident in making financial decisions.
For example, Treasury’s digital gold application offers various conveniences. Apart from being an investment tool, digital gold in Treasury can also be considered as savings because of its high liquidity, guaranteed security by BAPPEBTI, and can be started from a small nominal of Rp5,000.
Understanding the difference between savings and investments is an important foundation in building healthy finances. Both have complementary roles in your financial strategy. Savings are low-risk and can be accessed quickly, while investments offer the potential for long-term wealth growth.
You can be wiser in determining the portion and placement of funds by knowing the difference between savings and investment from various aspects. The combination of the two, if designed properly, will help you achieve your financial goals more effectively. So, don’t be confused anymore.
Let’s start saving gold in the Treasury digital application because in addition to maintaining asset value, you will also get benefits in the long run!
