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Should I save or invest?
Learn how savings and investments could work together, helping you reach your financial goals.
Saving vs investing
Before we get into the detail, below is a very basic comparison:
|
Feature |
Savings |
Investing |
|---|---|---|
|
Feature Interest rate |
Savings Relatively low |
Investing Potential highs and lows |
|
Feature Risk |
Savings Little to none |
Investing Varies by investment |
|
Feature Typical types |
Savings ISAs Savings accounts Fixed term accounts |
Investing Bonds Stocks Mutual funds Stocks and Shares ISAs Exchange-traded funds (EFTs) |
|
Feature Duration |
Savings Short term - 5 years or less |
Investing Longer term - 5 years or more |
|
Feature Cost |
Savings None |
Investing Varies by investment - for example, trading commission might apply |
|
Feature Skill level |
Savings None |
Investing Varies by investment |
|
Feature Flexibility |
Savings Depends on the account type |
Investing Depends on the account type |
Important to know: the value of investments and the income from them can fall as well as rise, and you may get back less than you invest. If you’re not sure about investing, you might like to seek financial advice. Just be aware that charges might apply.
Let's take a closer look:
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Monitored by the Office for National Statistics, inflation tracks the changing costs across a common ‘basket of goods and services’.
As living costs increase, the buying power of your money can be eroded.
Below is a fictional example, just as an illustration:
Imagine you save £5,000 for 2 years at a fixed interest rate of 2%.Assuming you don’t withdraw or deposit anything, at the end of the 2-year term, you’ll have earned £202 in interest. Your balance is now £5,202.
However, if the rate of inflation increased by a flat 3% each year, the adjusted buying power of your savings balance would be £4,895.
Important to know: the buying power of your money will be sheltered if you earn interest at a higher rate than inflation.
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Saving or investing can help you to build your balances over time, but the government do set limits on what you can earn before tax is payable. Their limits and rules also change over time.
You might like to explore the following guides:
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Whether you choose to save or invest really depends on your needs and preferences:
•Do you need regular access to your money?
•How much risk are you comfortable with?
•What’s the goal, and over what term?
Saving may suit you if you’ve got a short-term savings goal - within 5 years – and you’re happy with more modest but guaranteed returns.
Investing may suit you if you’ve got a longer-term goal – 5 years or more – and you’re willing to accept more risk in the hopes of stronger returns.
Always bear in mind, with investing there’s a risk that you could get back less than you put in. For example, if you need to withdraw funds while market conditions are poor.
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It’s always sensible to put some money aside for a rainy day, but it’s also worth considering:
Repaying existing debts first – especially if you’re paying more interest than you would be earning on a savings or investment account.
Keeping an easily accessible emergency fund – perhaps enough to cover your regular outgoings for a few months.
Financial Services Compensation Scheme
Eligible deposits held with us are protected up to a total of £85,000 by the Financial Services Compensation Scheme (FSCS), the UK’s deposit guarantee scheme.
