The difference between saving your cash in a bank or building society account where it can earn interest, and investing.
The things to consider when choosing to save or invest.
Should I save or invest?
If you have money to spare, you might be wondering whether you should save or invest with it. So, it’s important to understand the difference between the two.
Saving means setting aside cash for when you need it while investing means using your money to buy investments that you expect to grow in value over the longer term.
The crucial difference is the level of uncertainty about what you'll get back. When saving you'll get back what you put in, usually with a small amount of interest added. When investing you'll see the value of your investment rise and fall over time and it's possible you may get back less, as growth isn’t guaranteed. However, the potential for higher growth over the longer term is often greater.
Both investing and saving can help you reach your financial goals and make your money work harder. Savings are often used for short-term needs - up to 5 years, while you should consider investments for medium to long-term goals, at least 5 to 10 years.
Saving is when you put money aside, usually on a fairly regular basis. You might be saving up to pay for something specific, such as a holiday or a deposit on a home. It’s also worth having cash savings for a rainy day to cover unexpected expenses that might crop up, or if your circumstances change and you need to access money quickly.
Saving usually means putting your money into cash products, such as a savings account from a bank or building society, on which you’ll usually earn interest.
Although cash held in a savings account is generally secure, the impact of inflation will reduce the buying power of your money over time, unless the growth you receive through interest keeps up with the rate of price inflation. As the price of goods and services increases with inflation, your savings will gradually buy less and less with the same amount of money.
Consider saving if you:
do not want to take any risks with your money
have a short-term goal in mind – for example, saving for a wedding or a holiday
want to build up a nest egg so you have money available in an emergency, e.g., for house and car repairs.
When you buy investments it’s different from putting your money in a savings account to earn interest. You’re taking a risk with your money in the hope that it will grow over time, but there's the possibility you could end up with less. Its value will depend on the performance of a range of investments, such as shares in companies.