In economics, the definition of investment is quite strict.
- Investment means an increase in the capital stock – Gross fixed capital formation.
When we buy shares or put money in the bank. This is not seen as investment, it is seen as a mere transfer of ownership – there is no increase in the productive capacity of the economy. Therefore ‘investing’ money in the bank is properly known as saving.
- In common terminology we refer to ‘investing money’ in a bank. It is better to refer to this as ‘financial investment’ to avoid confusion.
- An investor is someone who increases the capital stock, or engages in ‘financial investment’
Definition of Saving
Saving is income that is not consumed. It could be money put in a bank or saved in cash.