Saving and investing can both be great ways to build up your cash for the future, whether you want to put money towards retirement, buying a house or car, or even a holiday. Saving and investing aren’t the same things though, and people often find their differences confusing to understand. On top of that is the question of which method is the best for your circumstances.
Saving money means putting away a certain amount of cash whenever you can, leaving it to build up its worth based on how much you add as well as how much interest you’re paid by your bank. Putting money away like this means your cash will be completely safe and easy to access (or liquid). However, interest rates are quite low at the moment, so unless you have a large amount of cash to build interest on, you’re not likely to see your money increase a lot.
Investing is a little riskier than saving. It can take different forms, but essentially it means using your money to buy something that you think will generate profit in the long term. For some people, this means buying shares in different companies; others invest in physical items like art, gold or jewellery; and others put their money into the hands of a bank in the form of a stocks and share ISA, an account that allows you to choose where your money is being invested.
If you’re new to investing, putting your money into a stocks and shares ISA, or using a company like Nutmeg, to manage your investing is a really good option as it takes the hassle out of the process. You just select how much you’d like to invest, choose how much risk you’d like to take, and leave the rest to them.
Which is right for me?
The answer to this question totally depends on your circumstances. Long term, investing tends to pay out more than saving, but the risk is very real; if you can’t afford to lose money, a traditional savings account is probably your best option. To help you compare, here are the main differences between saving and investing:
- Low risk
- Dependent on interest rates, which means returns are likely to be lower than investing in the long term
- Cash is liquid, and so easy to access if you need to
- Good for short-term money saving goals
- Minimal effort involved - just transfer money into a savings account when you can
- Higher risk - there’s a chance you’ll end up with less money than you put in
- Long term, tends to give you more growth on your money than savings (but don’t forget the risk)
- Not easy to withdraw your cash when you need it
- Good for long-term savings goals
- More effort needed to research investments or investment accounts