Saving or investing – what’s the difference?

Key takeaways

• Saving is typically used for shorter-term goals and easy access to money

• Investing is usually used for longer-term growth

• Many people use both depending on their goals

• Whilst it is important to have savings to fall back on, you should prioritise clearing any debts, such as loans, or credit cards first

Saving

Savings accounts keep your money in cash and usually pay interest. Your money is generally easy to access, although some accounts offer higher rates if you lock it away for a fixed period.

Why save?

For flexibility and peace of mind, there’s often no substitute for money in the bank. Saving is typically used for:

• Shorter-term plans – often five years or less

• Known future costs, like a holiday or house deposit

• Emergencies and unexpected expenses

Saving is considered ultra-low risk. Banks will pay the interest they promise (though rates can change), and eligible deposits are protected by the Financial Services Compensation Scheme (FSCS). This means if a bank, building society or credit union were to go out of business, the FSCS may pay back your savings – up to £120,000 per person, per institution.

What to keep in mind

Saving isn’t completely risk-free. If interest rates are lower than inflation, the real value of your money can fall over time. In simple terms, if prices rise faster than your savings grow, your money buys less.

Investing

Investing involves putting your money to work in the hope it grows over time. When you invest, your money is used to buy assets – things that can rise or fall in value – such as shares in companies.

Why invest?

Over longer periods, investing has historically offered more potential for growth than cash savings alone. It’s typically used for:

• Longer-term goals – typically five years or more

• Growing your money beyond what cash alone might achieve

• Things like retirement or building long-term wealth

What to keep in mind

The value of your investments can rise and fall, which means you might get back less than you put in. In the short term, investments can change in value suddenly, so you shouldn’t invest money that you might need access to quickly.

Many people choose to do a bit of both – saving for short-term needs and investing for longer-term goals, depending on what they want their money to do.

Are you ready to invest?

Not sure if investing is right for you yet? Take a look at our investing checklist to help you decide: Are you ready to invest?

This information is for education only. It’s not financial advice or a personal recommendation.

Moneysupermarket.com Investments Limited is an appointed representative of P1 Investments Services Limited, which is authorised and regulated by the Financial Conduct Authority (FCA FRN 752005).