The difference between saving and investing

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Windhoek

In light of possible bonuses and expected overtime payments this time of the year, FNB Namibia has taken to the task of educating Namibians about the difference between saving and investing.

The bank noted added that often people did not necessarily understand the difference between the two concepts, but understanding and putting both concepts into practice would go a long way to ensuring financial future. In a nutshell, saving is the short-term practice of putting money away for a goal or unexpected expenses and investing is the long-term strategy of putting money away and letting it grow.

There are many options available to save or invest with most financial institutions, but it is important to understand the difference between saving and investing, as they are two ways of making customers’ money work for them to achieve different goals. Saving means regularly putting away part of an income into a low or no-risk account, meaning that the money is guaranteed to earn a specific amount of interest and the original deposit is safe.

Regular deposits gradually build up, and this money can be used at a later stage. Savings are vital as building up reserves is an effective way to ensure that customers are financially secure when they are hit with unexpected expenses, such as a medical emergency or a car breakdown. It is also a way of paying large expenses, such as holidays or school fees without taking on debt.

The bank advised that every single Namibian with an income should be saving, albeit a small amount only. Those who haven’t started often use the excuse that they don’t have the money.

However, in most of these cases, if they scrutinise their budgets they will find that they are spending money on unnecessary items and expenses, such as clothes or entertainment.

On the other hand – investing is when you commit money for the long-term and let it grow. It is different to savings in that there is no set or guaranteed interest rate, and there are varying levels of risk, meaning customer’s money isn’t always fully guaranteed.

However the potential for profit or more aggressive growth is much higher.
Investing may seem intimidating, with concepts like stocks, unit trusts or bonds.

However, what customers need to understand is that investing is not gambling and is the next step after saving to make their money work for them and provide additional income in future. If they are just starting out, they should opt for something that is not too daunting, the bank advises.

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