Saving is accumulating money for future use and entails no risk, whereas investment is the act of leveraging money for a potential future gain and it entails some risk. Though both have the intention of having more capital available in the future, each go about growing in a very different way.
One aspect this is most transparent is the process of saving for a down payment on a home. Many advisors will suggest parking cash in a safer investment vehicle when saving for an important major purchase. Because investing incurs a higher degree of risk, an individual must compare what implications of loss of principle would be to their future plans.
Saving and investing are often intertwined because each may have a stated yield or rate of return. Another primary difference is the federal insurance coverage on certain accounts.
In plain words, savings refer to the excess of disposable income over consumption expenditure. From a national level, the unconsumed part of the entire nation’s income comprising of all its members can be termed as National Savings.
Total domestic savings, on the other hand, can be defined as the summation of savings of the government, the business sector, and households.
Some of the biggest determinants of savings are
Income, as saving income ratio holds a proportionate relation with the rise in income. People also have a tendency of saving the excess part of their income but not the entire bulk.
Distribution of income as the savings process is helped to a great extent by inequality of income distribution. Our desire to showcase a superior standard of living in comparison to our neighbors often steers us towards purchasing expensive goods which in turn declines the level of savings.
Psychological or subjective factors such as savings to safeguard ourselves from future insecurity and uncertainty. The ultimate attitude of people is driven towards savings by their farsightedness. This, in turn, boosts them up to enjoy a better standard of living both for themselves and their loved ones.
Prevalent financial instruments and rate of interest as a higher rate motivates greater savings.
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