Saving vs investing: What’s the difference?
When managing your personal finances, it is beneficial to know the options available to you . Saving and investing are two ways of handling your money, but which is the most suitable for your circumstances?
Saving
Saving simply means putting your money into a bank account where it can be accessed whenever you need it. The risk is low, but so are the returns.
Before thinking about investing, it could be beneficial to build a savings fund in case of an emergency, this gives you financial security for any change in circumstances. It’s generally a good idea to save the equivalent of six months of your usual spending as your emergency fund.
Once that’s in place, you can save towards short-term goals such as holidays, a new car, or a deposit for a home.
If you’re carrying debt, tackling this should take priority before saving or investing.
Investing
Investing involves putting money into assets such as shares, property, or investment funds. Unlike savings, investing always comes with a risk of your investments going down in value, meaning you could lose some or all of your money.
Deciding whether to invest your money is dependent on:
- The funds you have available
- Your personal circumstances
- Your views towards risk
- The goals you would like to achieve
Matching goals with strategies
- Short-term (within 5 years): Saving is usually safer, as markets can be volatile in the short term.
- Medium-term (5–10 years): A mix of saving and investing may be appropriate, depending on your risk tolerance. For example, if you’re saving for a house deposit, you may prefer the security of a savings account, even though inflation could erode value.
- Long-term (10+ years): Investing often outperforms saving, as it offers growth potential that can help offset inflation. Spreading investments across different assets (diversification) can also help reduce risk.
Getting advice
Choosing between saving and investing depends on your goals, timeline, and risk appetite. If you’re unsure, seeking guidance from a regulated financial adviser can help you make informed decisions tailored to your situation.
We’re here to help
If you’d like to learn more about the options available to you or require help with developing a tailored strategy to help you grow and protect your wealth, please get in touch with a member of our specialist team via the form below.