The clarity grade of a diamond is determined by the number, and visibility, of its natural inclusions. These inclusions can exist inside the diamond, or on its surface, and may be present in various forms: pinpoints (white dots), carbon (black dots), feathers, bubbles, crystals, cracks, scratches and chips.
Diamonds are graded under 10x magnification (a jeweler's loupe), and are classified according to the following scale:
F
Flawless
IF
Internally Flawless
VVS1-VVS2
Very Very Slightly Included
VS1-VS2
Very Slightly Included
SI1-SI2
Slightly Included
I1-I2-I3
Included
Flawless diamonds have no internal or external flaws, while Internally Flawless diamonds have only slight external flaws. Both of these types of diamonds are very rare and very expensive; they are not typically found in engagement rings.
VVS1-VVS2 diamonds have inclusions that are very difficult to see under 10x magnification by a gemologist. VS1-VS2 diamonds have inclusions that are difficult to see under 10x magnification by a gemologist. The untrained eye would not be able to tell the difference between these grades; and you certainly could not distinguish between them without magnification! Therefore, VS stones are usually a better value for your money; they look as beautiful as VVS stones, but are less expensive.
SI1-SI2 diamonds have inclusions that are easily detected under 10x magnification, yet still invisible to the naked eye. These diamonds can be a good choice if you are on a budget, and are willing to sacrifice a little bit of quality for size. There is, of course, a range of SI stones. Some strong SI1 stones are only a pinpoint or two away from being VS stones, and only a trained expert can tell the difference. SI2 stones have more visible inclusions, but they are still "eye-clean."
I1-I2-I3 diamonds have inclusions that are visible to the naked eye. Unless you are out to get the biggest diamond possible at a rock-bottom price, it is best to steer clear of these stones. The flaws can be spotted without a jeweler's loupe, and will also affect the brilliance and general appearance of the stone.
So which clarity grade should you choose? Most people in the engagement ring market are not going to pay the super-high premiums for F and IF stones, nor the high premiums for VVS stones. Yet, most would like to present their beloved with something better than an I stone. That leaves the VS and SI grades as the most popular, and most available, choices; which one you choose will depend on personal preference and budget.
To put it simply:
Buy a VS diamond if you'd like a very nice stone, with inclusions that are difficult even for an expert to see under magnification
Buy an SI stone if you'd like a nice (SI1) to fair (SI2) stone, with inclusions that can be seen easily under magnification but not to the naked eye.
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