Is investing in a digital platform better than saving accounts?

Since ages, Indians have been used to saving money in multiple forms, like savings bank accounts, fixed deposits and bonds. But the practice of investment has always been a foreign habit to us. Investments have been perceived as a taboo that it is for people whose earnings are high. But that is not true.

If we track down Indian investment interests, for a long period, it has been divided into two sources mainly - gold and land. These two are the only sources that Indians plan their investments. Now with the millennials and gen z starting their earning phase, they are looking for investment options on various sources, including digital investment platforms.

Still, many people confuse saving for investment and also use these terms interchangeably. But these two terms are very much distinct from each other. Though these are different, both saving and investing are important for financial planning.

One should start planning their finances as soon as they start earning. With micro-investment digital platforms, even students can start to invest their pocket money. This article will help you understand the importance of investment and savings and also list the differences between them.

What does an investment do?

When it comes to investing in digital platforms, you invest money into financial products and investment channels that have the potential to generate income or contribute to the accumulation of wealth. If you start investing early, you will get a better return. Understanding the various investment sources and digital platforms, what they are for, and how to use them is a critical need for successful investment planning.

For example, if your child is in their school days and now you start investing for them in education investment plans, when they reach college, you can use the returns from their own investments for their educational expenses. This is better than getting education loans for college. It will be highly helpful if you start investing 10 years before your child reaches the college phase.

What does a savings account do?

Saving is setting aside money for future needs, purchases, unexpected expenses and most importantly, unforeseen situations. Saving money in a saving account usually means that it will be there when we need it and will not depreciate in value. It’s critical to keep track of your savings, assign a deadline or schedule, and a monetary value to your objectives.

For example, you can start an RD for a year and regularly save money every month for your annual vacation. You’ll save a certain amount and withdraw them after 11 months when you are ready to plan your vacation. If not planning a vacation, use it to invest.

Importance of saving

Saving is the first move one should make when they start earning, it plays as a financial cushion for emergencies and sudden unannounced expenses. There are multiple benefits of saving once hard-earned money; we listed a few here:

• Uncalled situations — Savings in accounts are necessary regardless of the end purpose for which they are being saved. Emergencies can strike at any time: you could be laid off from your job, suffer a family medical emergency, or decide to start your own business. You need liquidity to fall back on in these scenarios. As a result, it is usually advisable to set aside at least 25% of your salary as a saving.

• A Step to investment — The amount difference between your income and expenses is what you save. Allocate a modest amount of your savings into liquid assets such as bank fixed deposits or liquid funds, and the rest to long-term wealth growth. The money you set aside when left untouched for a long period can be used for investments.

Importance of Investing

Investments in digital platforms are the key to one’s future since they help you achieve your goals. The following are some of the most significant advantages of investing:

• Live through inflation — Investing allows you to sail through inflation over time. If you don’t invest, your purchasing power will erode over time as inflation eats away at the value of money. To protect yourself against this inflation, it makes sense to put your money into investments that have the potential to outperform inflation and yield high returns.

• Best future financial plans — Whether you want to buy a house, a car, save for your marriage, pay for your child’s further education, or plan for your retirement, investing can help you achieve all of these financial goals. Invest your money in the most effective ways to attain your long-term objectives. Any financial goal to be attained must be planned at least before 5–10 years. If you start investing beforehand, you can earn your desired return.

• Better returns — Without any doubt, digital investment platforms are the ones that give higher returns than saving bank accounts.

Key differences

The most significant and fundamental distinction between saving and investing is the risk involved. When you deposit money into a savings account, it has a low danger of losing money but also has a low chance of making money, that is, the returns. When you save, you can usually access that money when you need it and it is easy to convert into liquid cash.

When you invest, you have the possibility of greater long-term gains or rewards, but you also have the possibility of loss. Investing for higher returns in a shorter period comes with greater risk. The potential loss can also be higher. It is important to assess your objectives to determine the best available option between saving or investing. If you make a harsh and impatient investment move, it might cost you a lot of money in fees or a loss of prospective revenue from investing.

Another major difference is the duration. The savings account is ideal for short-term locking up of money. It is advisable not to save money in a savings account for any expenses/goals that will occur after a year. At the same time, investing is for long-term financial goals. Your investments will yield positive returns when invested for a long period, like 5 years and above. In the same way, the liquidity option also differs a lot between saving accounts and investing in digital platforms. Savings account money can be easily made into cash, while most investment options come with a lock-in period.

Which is better?

To conclude, which is better among a savings account and investing in digital platforms is highly dependent on your financial situation, risk tolerance, and financial aspirations. However, if you need the money quickly, say within a year or two, or if you want to start an emergency fund, you should consider opening a savings account. But if you want to expand your wealth over time, you should consider investing with the best investment platforms.

Saving and investing are two distinct concepts that work hand in hand to safeguard your financial future and serve financial goals; neither can be avoided in this ever-inflating market. If you want to stay up with the rising expense of living, you must invest. Remember, the sooner you begin, the more you can accumulate wealth in the long term. Furthermore, when you invest for a longer period of time, your investments tend to ride the market’s volatility. Congratulations on your investment!