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This short guide explains the difference between saving and investing so you can work out which is right for you.
(Spoiler alert! It may be a combination of the two.)
Saving is putting aside some of your money for the future. It's a type of investing that's considered fairly low risk. You might be saving for something specific, like higher education or a holiday. Or building a savings pot to cover any emergencies or unexpected costs you might face.
You can build your savings in one-off or regular payments. And if you use an easy-access savings account, you can get back what you put in, plus the interest you've earned, whenever you want it.
Although saving is regarded as low risk, the returns you'll get on your savings from interest can be modest, especially when interest rates are low. The inflation rate can also rise and reduce the real value of your savings and the interest you earn.
Putting money into savings may be suitable for people who:
Learn more: 10 fun ways to pinch pennies
Investing also involves setting aside money for the future. However, with investing, you're putting your money into something where you believe the value will change over time. It can involve buying assets such as stocks, bonds, mutual funds or property, with the expectation that your investment will make money for you over a given period.
You invest money usually when you hope to make greater returns than you could by keeping your money in savings. There is a risk, however, because your returns are not guaranteed and you might get less back than the sum you invested in the first place.
Investing money may be more suited to people who:
Learn more: How to start investing
Are you trying to decide between saving and investing? It's easy to end up going around in circles when trying to decide on the best way to grow your money. Whether to save or invest will depend on your individual circumstances and the financial goals that you have set yourself.
Savings held in one or more savings accounts may be the sensible choice. You can build an emergency savings fund to meet your financial needs if the unexpected happens, with easy access to that money. There's usually little risk that you'll lose your money. However, while interest rates may be low, returns on your savings may be modest. Remember that any interest you earn may not keep up with inflation.
Investing money may provide a better chance of achieving higher returns than keeping your money in savings accounts. If you don't need to access your money in a hurry, and can afford to tie it up over a number of years, investing can offer a better chance of keeping up with or beating inflation. When building your financial portfolio, you'll want to consider your risk appetite and financial goals.
For many people, the answer to which is best for you is a blend of the two. For example, to build an emergency fund to meet unexpected costs, an easily accessible savings account would seem a sensible option. However, to achieve long-term financial goals, like saving for retirement, taking a degree of investment risk could earn you a greater return.
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