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Savings and Investments

Savings and InvestmentsThere is a fundamental difference between savings and investments, and that is on the one hand, savings are very low risk, slow return whereas investments can be higher risk but higher return.

Savings within banks will earn a steady interest for example, though this rate will not be much above current inflation levels. Investments are also often managed within banks, though come in many forms which can quickly become very complicated, such as derivatives, bonds and more. From an investment you can earn two ways – one of those is through income derived and the other is called a capital gain, which is where the asset you invested in is sold on for a profit.

In general, investments are for money which you don’t need in the next couple of years, unlike savings, as this allows the higher risk to be smoothed out over time.