Saving and investing money both make up a huge part of financial planning. Both strategies offer resolute financial security for the future. Yet there are some major differences between the two. While savings offers a safe enclosure for immediate monetary needs, investment is a process of increasing the existing wealth. Therefore what are the pros and cons of savings and investment? And which one should you choose? Let's find out.
What is Saving?
Savings is typically the act of storing away the money. It offers a safety net for sudden or immediate needs. Banks offer long term fixed deposits and short-term savings account as per the need of the client. Depending on your need, you can start saving on a long-term and/or short-term basis.
From another perspective, savings are associated with low risk and low return. The cash is readily available at hand but the growth opportunity is very low.
Pros of Savings
Access and Availability
Nowadays, it is quite easy to open a savings account. You have 24/7 access to your deposited money through ATM or debit card. In addition to that, you can also transfer funds from one account to another instantly.
In Bangladesh, the savings accounts can be opened in Bangladesh Bank authorized banks only. As per the regulation of the constitution, Bangladesh Bank acts as the superintendent of all the existing government and private banks of the country. Due to high regulatory monitoring, your money is safe and secured beyond any reasonable doubt.
A savings account accrues interest over your deposited money. The interest rate differs from bank to bank and it also depends on the amount of money deposited. There is also the factor of the type of deposition. For example, a fixed deposit will accrue more interest compared to a current savings account. However, the rate, in general, is quite low so you shouldn’t be expecting much to be added to your savings.
No lock-in period
Unless you are opting for the fixed deposit scheme, there is no lock-in period with your account. That is you can switch your account status as well as the minimum amount any time you want. This allows an added flexibility which can be useful in the long run.
Cons of Savings
The economy is susceptible to inflation. The worth of money 10 years ago grossly differs from the worth it has today. So if your bank is not providing you with a competitive interest rate, the savings might be subjected to inflation. That is to say, the worth of your deposit right now might be less in a year.
Minimum balance requirement
Most banks have a provision for minimum balance requirements. You need to maintain a threshold amount all year round. This can be problematic if you are saving a little. However, the threshold amount is very low in the case of current savings. But it can go up if you opt for a fixed deposit scheme.