Investments & Savings

Within personal finance the act of saving corresponds to nominal preservation of money for future use. A deposit account paying interest is typically used to hold money for future needs, i.e. an emergency fund, to make a capital purchase (car, house, vacation, etc.) or to give to someone else (children, tax bill etc.).

Within personal finance, money used to purchase shares put in a collective investment scheme or used to buy any asset where there is an element of capital risk is deemed an investment.

This distinction is important as the investment risk can cause a capital loss when an investment is realized, unlike cash saving(s). Cash savings accounts are considered to have minimal risk.

In many instances the terms saving and investment are used interchangeably. For example many deposit accounts are labeled as investment accounts by banks for marketing purposes.

To help establish whether an asset is saving(s) or an investment you should ask yourself, “where is my money invested?”. If the answer is cash then it is savings, if it is a type of asset which can fluctuate in nominal value then it is investment.