Saving and Investing, while related in that both involve setting aside money for future use, have distinct natures:
Security vs Growth: The nature of saving is safety. When you save, your primary aim is to preserve your money and have it available when needed. This is why savings are usually kept in instruments that are very low risk (e.g., bank deposits are usually insured up to a certain amount by the Kenya Deposit Insurance Corporation, meaning even if ...Kenya Deposit Insurance Corporation (KDIC) insures deposits up to KSh 500,000 per bank account, meaning even if a bank failed, your savings up to that amount are protected).
With investing, the aim is growth and higher returns, but your principal is usually subject to market risk (no guaranteed protection – if the stock market drops, your investment value can drop).
Time Frame: Saving generally is for shorter-term or undefined needs – you save so that you have money handy for emergencies or upcoming expenses.
Investing is inherently more long-term. While you can invest short-term, the true power of investing comes over longer periods where compounding and market growth happen. For example, you save to buy a new sofa in 6 months, but you invest for your child’s college fund 10 years away.
Returns: Savings offer low returns. A savings account might give you 3-5% interest in Kenyke.kcbgroup.com】, which primarily just preserves value and gives slight growth. Investing offers the possibility of higher returns – e.g., stocks in a good year might return 15% or 20%, land values might double in a few years in a booming area, etc. However, those higher returns come with uncertainty. Savings returns are usually fixed or guaranteed (e.g., fixed deposit rate, or set interest by the bank, or fixed M-Shwari ratsafaricom.co.ke】). Investment returns are variable – you might average 10% a year in stocks, but one year could be +30%, another -15%.
Risk: By nature, savings are low risk. You almost never lose money in a standard savings account (the only risk is the bank collapsing, which, as noted, is rare and mitigated by insurance, or the risk that inflation outpaces your interest – which is a subtle loss of purchasing power).
Investing involves risk to principal – you can lose money. The value of an investment can go below what you put in. For example, if you invested KSh 100k in shares, after a market downturn it might be worth KSh 70k – that’s a loss until the market (hopefully) recovers.
With real estate, prices might stagnate or even fall depending on economic conditions (ask those who bought into overpriced developments and struggled to resell). Thus, investment requires risk tolerance and a longer view to weather downturns.
Accessibility/Liquidity: Savings are typically liquid – you can get your money quickly. You can withdraw from your bank or Sacco savings often immediately or with minimal delay.
Investing, depending on the asset, can be less liquid. Shares can be sold within days (if there’s a buyer) – fairly liquid, though one must factor in trading days and broker timelines. Real estate could take months to sell – not liquid.
If you invested in a fixed-term product (like a 5-year bond or a fixed deposit), you either cannot pull out early or will pay a penalty. Therefore, money you may need on short notice should lean towards saving, not in a locked or illiquid investment.
Earnings Form: Savings earnings are usually interest (a fixed, simple interest or occasionally compound if you leave it to accumulate).
Investing earnings can be income (interest, dividends, rent) and/or capital gains (asset value increase). For instance, a rental property gives you rent (income) and might appreciate in value (capital gain). A stock might pay a dividend (income) and its price may rise (capital gain).
Savings accounts generally don’t have capital gains – your balance doesn’t suddenly grow unless you deposit more or interest adds.
In short, saving is characterized by safety, accessibility, and low return, while investing is characterized by risk, growth potential, and long-term horizon. One analogy: saving is like keeping chickens for eggs (steady, reliable, small yield), whereas investing is like rearing a cow for milk and possibly calves – more maintenance and risk, but larger yield over time.
Understanding this nature means you use each tool appropriately. You wouldn’t invest your three-month rent money in volatile stocks – that needs to be saved (secure and available).
Conversely, if you keep all your excess money in a savings account for 10 years, you may miss out on significant growth that investing could have provided, and inflation will nibble at your money’s valucentralbank.go.ke】. So it’s about matching the nature of the money’s purpose with the nature of saving or investing.