Savings and Investments

Savings in Personal Finance refers to the accumulated money put aside by saving - typically by putting it on deposit - this is distinct from investment where there is an element of risk.

Personal saving corresponds to nominal preservation of money for future use. Although inflation can still erode its real value,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). Some risk applies to savings in a deposit account: real value is lost when inflation exceeds after-tax interest rates, and in extreme cases loss can occur due to bank failure.

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.