Jasmine Birtles
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Cash vs Investments: When Should You Save and When Should You Invest?
Ruby Layram
8th Aug 2025
Ever feel like you’re stuck between two money moods? One part of you says, “Be sensible, save your cash.” The other’s thinking, “You’ll never build wealth unless you invest.”
The truth is, both saving and investing have their place. But knowing when to save and when to invest can make all the difference in how quickly you reach your financial goals.
In this blog post we will break it down, cash vs investments, and help you figure out what to do with your money right now.
What’s the Difference Between Saving and Investing?
Let’s get the basics straight first.
- Saving: putting money aside in a secure, easy-to-access place like a current account, savings account or cash ISA. It’s low risk but grows very slowly (if at all).
- Investing: putting money into things like stocks, bonds, property or funds with the hope that it grows over time. It’s higher risk but (historically) has better returns in the long run.
Put simply:
- Saving protects your money.
- Investing grows your money.
When Should You Save?
Not everything in life needs to be “invested”. Sometimes, the best thing you can do is stash cash safely and sleep well at night.
Here’s when saving is the smarter move:
1. You don’t have an emergency fund yet
Before you even think about investing, you need a cushion. Aim for 3 to 6 months’ worth of expenses in a high-interest savings account or cash ISA.
This is your financial airbag, it stops you having to dip into your investments when the car breaks down or your job disappears.
2. You need the money in less than 3 years
Thinking of buying a house, starting a family, or taking a big trip in the next year or two? Keep that money in cash.
Why? Because the stock market goes up and down. And the last thing you want is to invest your house deposit and see it shrink 15% when you’re just about to exchange.
3. You’re risk-averse and need peace of mind
There’s nothing wrong with being cautious. If you know you’ll panic every time your investment balance dips, it might be best to prioritise cash until you’re more comfortable with risk.
When Should You Invest?
Once you’ve got your savings sorted and you don’t need the money for a while, that’s when investing starts to make sense.
Here’s when it’s time to grow your money:
1. You’ve got an emergency fund in place
If you’ve already got that 3–6 month cash buffer, great, you’ve earned the right to start investing.
You don’t need loads. Even just £25–£50 a month into a Stocks & Shares ISA is a great start.
2. You don’t need the money for 5+ years
This is the golden rule. If you’re investing for the long term (think retirement, future house, building wealth), the ups and downs of the market won’t matter, because over time, the market tends to go up.
In fact, £100 invested monthly in the FTSE 100 over 10 years could grow to more than £15,000 (based on average returns). That’s a lot more than a regular savings account could do.
3. You want to beat inflation
Let’s be real: inflation eats savings. If inflation is 5% and your savings account gives you 3%, your money is losing value in real terms.
Investing gives you a shot at outpacing inflation and making your money actually work for you.
How to Decide: Save or Invest?
Here’s a handy framework you can use:
| Question | Save or Invest? |
|---|---|
| Do you have less than 3 months’ worth of expenses saved? | Save |
| Do you need the money within 3 years? | Save |
| Are you investing for retirement or long-term wealth? | Invest |
| Are you worried about inflation reducing your cash’s value? | Invest |
| Would losing 20% of your money in a bad year cause major stress? | Save |
| Can you afford to leave the money untouched for 5–10 years? | Invest |
If you’re saying “yes” to both saving and investing, that’s ideal! A balanced approach is often best.
The Perfect Mix: How to Balance Cash and Investments
Here’s a simple guide for a balanced strategy:
- Step 1: Build your emergency fund: aim for 3–6 months of expenses
- Step 2: Pay off any high-interest debt: investing isn’t worth it if you’re losing money to credit cards
- Step 3: Start investing monthly: even if it’s just £50/month into a low-cost index fund
- Step 4: Review regularly: adjust your savings/investments as your life changes
Final Thoughts: Both Have Their Place
The best investors aren’t “all in” on stocks or cash. They know when to be cautious and when to be bold.
Savings protect you.
Investments build you.
If you can find a balance that suits your income, your goals, and your nerves, you’re already ahead of most people.
So the next time you’ve got a spare £100? Ask yourself: “Do I need this in the next year?”
If yes, save it.
If no, invest it and let it grow.
Are you interested in learning more about investing? Why not sign up to the MoneyMagpie bi-weekly Investing Newsletter? It’s free and you can unsubscribe at any time if you find it isn’t for you.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. When investing your capital is at risk.
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