Growing your wealth: savings or investment? (part 1)

Why choose savings?

When we say savings, we should not limit to savings account in the bank but also fixed deposits as well as savings/endowment plans.

1. Short-term vs Long-term

The main reason one saves in the bank is to preserve capital, in return for very low return (which is not the purpose of the savings account to begin with).

Liquidity and ease of access are main considerations as well. Hence, a short-term view in managing money.

2. Long-term, decent return but locked-in

However, one can opt for a savings/endowment plan, offered by insurance companies, which purpose is to help you to save for medium to long term. It can be for a 10 year term, though generally customers opt for between 15 to 25 years term.

The idea is to help the customer with a disciplined savings towards a goal, hence locked in. (There is also an option to receive yearly cash payout.)

In return, customers can expect to get a decent return projected between 3.25% to 4.75% per annum.

3. Risk averse

This is often one of the main reasons a customer would choose a savings option.

Capital preservation is attainable through savings account or fixed deposits offered by banks.

But for a decent yet higher returns, customers would consider savings/endowment plans offered by insurance companies.

While it is not capital guaranteed, customers are not subjected to investment fluctuations. That is an assurance some customers prefer in savings towards a particular goal.

(Next: why would a customer opt to do investment instead?)

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