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Save or invest?
Explore how savings and investments can work together to help you meet your financial goals.
So how do they compare?
|
Feature |
Saving |
Investing |
|---|---|---|
|
Feature Returns |
Saving Typically low, but stable |
Investing Potentially higher returns, but there are also greater risks |
|
Feature Risk |
Saving Minimal |
Investing Varies depending on the investment |
|
Feature Account types |
Saving ISAs Savings accounts Fixed Term accounts |
Investing Stocks & Shares ISA Share Dealing Account Ready-Made Investments Ready-Made Pensions Self-Invested Personal Pensions |
|
Feature Duration |
Saving Short-term (Less than 5 years) |
Investing Longer term (5 years or more) |
|
Feature Cost |
Saving None |
Investing Account charges (some investments also have fees and trading costs may apply when buying or selling investments). |
|
Feature Skill level |
Saving None |
Investing Depends on the investment |
|
Feature Flexibility |
Saving Depends on the account type |
Investing Investments can be sold at any time and the money can be accessed, but generally they should be held for five years or more to give them time to grow. |
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.
A look at the details
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As prices rise on everyday goods and services due to inflation, the purchasing power of your money can decrease.
Below is a very simple example to illustrate this:
Let’s say you save £5,000 for two years at a fixed interest rate of 2%.
If you don’t make any withdrawals or deposits, after two years, you would earn £202 in interest, bringing your balance to £5,202.
However, if inflation increases by 3% per year, the adjusted purchasing power of your savings would be reduced to £4,895.
If you can save at a rate of return or interest that exceeds inflation, the purchasing power of your money should be protected.
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The government does set a limit on how much interest or returns you can make from your savings or investments before you have to pay tax, although this is subject to change. ISAs protect you from paying tax on any interest you make with savings, as well as protecting investments from Capital Gains Tax, UK Income Tax and tax on dividends. Take a look at our guides below to learn more:
-
Choosing to save or invest your money depends a lot on your needs and financial goals. Ask yourself:
Do I need regular access to my money?
How much risk am I comfortable with?
What is my goal, and over what term?
Saving may suit you if you’ve got a short-term goal, within five years, and you’re happy with lower, but more guaranteed returns.
Investing may suit you if you’ve got more of a longer-term goal of five years or more, and you’re willing to accept more risk for potentially stronger returns.
However, saving and investing can work hand in hand and there is space for both when creating a financial plan. There’s nothing to stop you from putting money into both savings and investments, to help you manage both your short and longer-term goals.
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It’s sensible to put some money aside as a safety net in case of an emergency, so that you have enough to cover your regular outgoings for a few months.
Also, if you’re paying more interest on debts than you would be earning on a savings or investment account, you should aim to repay those debts first.
Save & Invest calculator
You can try our calculator in our app
- Explore the potential of your money with our Save & Invest calculator.
- See how your money might perform depending on whether you save or invest, or both.
- Compare your personalised Savings and Investing estimates, so that you can decide what’s right for your financial goals.
How to do it
We'll take it step by step.
- Log in and select Save & Invest.
- Select Save & Invest calculator.
- Select Try the calculator
Getting started online
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