Saving and investing
Definition
Saving is setting aside income for future use, typically in low-risk accounts like savings accounts. Investing involves using money to purchase assets like stocks, bonds, or real estate with the expectation of earning a return, which carries greater risk but potentially greater reward.
Examples
- A savings account at a bank earns a small, guaranteed interest rate with FDIC insurance up to $250,000
- Buying shares of stock in a company like Apple means owning a small piece of that company
- A 401(k) retirement plan allows workers to invest pre-tax income in diversified funds
Key Fact
The Rule of 72: divide 72 by the annual interest rate to estimate how many years it takes for an investment to double.
Study This Concept
Practice saving and investing with free review games in these units: