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
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.