Saving vs. Investing: What's the difference?

Keeping pace with inflation : If you use your money today to buy what you need or want, this same amount of money in the future will usually buy less due to the impact of inflation. Therefore, unless your savings are growing faster than the rate of inflation, your savings will be effectively worth less in the future than they are now. For example: with 2% inflation and a 35% marginal tax rate, you would need to earn a return of 3.08% in order to break even on your investment1. It may be difficult to find a savings account with an interest rate to allow you to break even, especially in a low interest rate environment. When you invest, depending on the investment product selected, there is more potential for your investment to keep up with inflation.

Generating income: Growth may not be your primary objective. For those who are in or nearing retirement, generating a higher regular stream of income might be a priority. Investments, like a mix of stock and bonds, GICs or mutual funds, can seek to provide a level of income that exceeds inflation.

Tailored to you: Investment advice can be tailored to your personal goals and can be aligned with your investment objectives, time horizon and level of risk tolerance. By working with a TD Personal Banker, you can receive personalized advice on suitable investments to help meet your needs today and, in the future, as your goals or financial circumstances change.

Starting is easy: You can start investing right away —there is no need to wait. You can invest a lump sum if you have the money already or you can start by investing small amounts automatically.

Automatic investing: Setting up a regular automatic contribution takes the guesswork out of when to invest. In situations where the value of the investment fluctuates, investing automatically/regularly helps to even out the purchases over time, and may improve the growth potential of investments in the long run, reduce the risk, and take the worry out of 'when to invest' to maximize returns.

Preferential tax treatment: In non-registered accounts, any growth in the form of capital gains and dividend income are normally taxed at a lower rate than interest income. By using your savings to invest in products that generate capital gains and dividends (like stocks and mutual funds), you could be paying a lower tax rate on any growth rather than leaving your savings in a savings account (which generates interest income).

GICs: A Guaranteed Investment Certificate (GIC) is a deposit that provides a guaranteed rate of return on your investment, making it a safe way to invest your money.

Mutual Fund: A mutual fund is an investment that pools the money of many individual investors and uses it to buy securities such as bonds, stocks, or other investable assets that are selected and managed by a fund manager. Each mutual fund has an investment objective which the fund seeks to achieve to the benefit of the investor. You invest in mutual funds by purchasing units of the fund. Mutual funds values tend to fluctuate and there is no guarantee that you will earn a return on your investment or the total amount you invested will be returned to you. It is recommended that you review the fund facts or prospectus before investing in mutual funds.

TFSA: A Tax-Free Savings Account (TFSA) is a registered plan where you can save or invest up to your individual contribution limit and your earnings are tax-free.

RRSP: A Registered Retirement Savings Plan (RRSP) is a registered plan that lets you build up savings designed for your retirement, while deferring your taxes.

Spousal RRSP: A Spousal RRSP is a registered plan where you contribute money to your spouse's or common-law partner's RRSP, while also deferring taxes.

RESP: A Registered Education Savings Plan (RESP) is a registered plan that helps you save for a child’s post-secondary education. RESPs can be a great option, as saving incentives such as grants are offered by the government.

RDSP: A Registered Disability Savings Plan (RDSP) is a special program for Canadians with disabilities and their families to help save for long-term financial needs like future medical costs.

RRIF: A Registered Retirement Income Fund (RRIF) is a retirement income option which gives you the flexibility of deciding how much income you withdraw each year from your retirement savings. A minimum annual amount is set according to the federal government’s predetermined schedule. Often, owners of RRSPs roll over the balance from those plans into a RRIF.