Join MoneyMagpie today!
Log in or Register.
Sep 07

Saving vs Investing: What’s the Difference?

Reading Time: 4 mins

If you’re looking to grow your money, it’s likely that you’ll have a few questions. What’s the best way to grow money quickly? What are the benefits of saving vs investing? When should you choose one over the other? Can you, actually, do both? 

Let’s look at the key differences between saving your money and investing it. By the time you’ve read it, you’ll have a clearer idea of where your money will be best placed to help it grow – whether in the short or longer term. 

Saving vs investing: what are the differences?

Saving or investing - which should you choose?

They might get lumped together a lot of the time, but in fact saving and investing are at opposite ends of the financial spectrum. In its simplest form, saving is putting money away, not touching it, and hopefully allowing it to grow. As Smart About Money says, it’s also “money you want to be able to access quickly, with little or no risk, and with the least amount of taxes.” Your first port of call for saving is probably your high street bank – likely the one where you house your current account. 

At the other end of the scale, investing is spending your money to purchase items that are likely to grow in value. These might be tangible items, such as art or vintage cars. An investment could also be less tangible, such as stocks and shares, or a stake in a business. 

There are, of course, occasions when saving and investing might overlap. Your pension pot, for example, is something that you are saving towards. At the same time, though, your pot is more than likely to be invested via the fund that you’re signed up with. This enables it to grow. You can, of course, choose a pension fund with a low yield, which protects it to a greater extent. The amount of risk that you want to take when it comes to your pension fund is up to you. 

When to consider saving

There are times when saving is the best option. Here’s when to consider saving instead of investing:

When you’re working towards a goal 

If you’re looking to save up in order to make a big purchase, saving is likely to be a better idea than investing. If you’ve got a certain financial goal that will let you put down a deposit on a house, for example, you’d be unwise to risk it on potential investments. If you choose to invest and the investment goes wrong, your much needed deposit or car down payment could disappear forever. 

In this case, you’re best to put the money that you’ve already saved into a high interest account. You could then set up a direct debit that comes out of your current account and goes into the savings account every month. 

When you’ve got no savings Yet

If you have no savings at all, this should be your priority over any potential investments. Investments might seem tempting, but betting all your money on something unproven is likely to be a dangerous game. Rather than trying to grow your small pot quickly in this way, you should try and save more first and give yourself a bit more security in the long-term. 

If you want to access your money quickly 

If you want access to your money, saving is a much better option than investing. With investments, your money will be tied up – and there’s no guarantee on when you’ll see a return. Saving will allow you fast access to your money when you need it. For this reason, if you’re pursuing short-term goals you should always choose this route. 

Of course, the decision on whether to save or invest really comes down to where you are in your life and what your both short and long-term goals are. Major life goals are likely best achieved by saving… and then saving some more. This won’t always be your situation, though. So, when should you consider investing over saving? 

When to consider investing

Investing offers more opportunity for returns - but is riskier

So, you’re financially secure. You’ve got a savings pot already. And you don’t need to access all your money in the immediate future. That might mean you’re ready to invest. Here are some things that you also need to consider if you’re ready to take that step… 

  • You understand markets, as well as stocks and shares, and have time to follow them if this is the investment route you’re going down 
  • You’ve got help from someone who has done it before – especially if you’re a first-time investor
  • You want to grow your money for the longer term, and don’t need access to it quickly 
  • If you’re investing in a business venture, you understand the industry involved and can spot a clear opportunity for growth

You’ll find a number of articles on the subject of investing at the end of this article. Make sure you do your homework before you take the leap! 

Saving vs investing: Why you should ideally do both 

Of course, there’s no reason why you can’t both save AND invest. In fact, doing both makes for an ideal scenario. Diverse portfolios, anyone? 

When it comes to your money, it’s useful to be in the position to have different pots for different purposes. So you might be saving for a house deposit, with a certain amount of money ring-fenced in order to let it grow. You might have a separate pot that you’ve set aside for a foray into the stock market. Having both short and long-term goals is a sensible way to manage your money – we applaud it! 

Have you got any words of advice on saving vs investing? If the answer is yes, we’d love to hear them. Let us know over on the forums. 

Now read:

Want to know more about saving or investing? Try these articles next!

Saving Accounts


0 0 vote
Article Rating
Notify of
Inline Feedbacks
View all comments
1 month ago

Some great information here. Thanks.

2 months ago

Great advice on this.

Related Articles

Experian Financial Control

Make Money and Save Money

ideas for everyone
Send this to a friend