Savings Accounts

Within personal finance the act of 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.).

Savings within personal finance refers to the accumulated money put aside by saving.

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 realised, unlike cash savings. Lower levels of risk normally apply to savings e.g. real value is lost when inflation exceeds interest rates, or in extreme cases loss can occur due to bank failure.

In many instances the term saving and investment are used interchangeably which confuses this distinction. For example many deposit accounts are labelled as investment accounts by banks for marketing purposes. To help establish whether an asset is savings 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.


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