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What is the Difference Between Saving and Investing?
Some of our earliest memories will involve our peers informing us about just how important it is to save for a rainy day. While this is true, some might be wondering whether saving and investing are the same thing or what the difference is between the two.
What are Savings?
Effectively, saving money is putting your money into a bank or building society or even an ISA in the UK. Once you have opened a savings account, you then add to the amount regularly so that over time, it grows to a larger amount while earning interest.
Saving is flexible as you can choose to save as much or as little as you wish and you can decide how long you save for, giving you the chance to plan for future purchases or any other financial commitments that you might be expecting. One of the main advantages of saving is that you can generally access the money instantly, which is useful when you need it quickly. However, this might not be the case if you have chosen to save using a fixed term account.
Despite the benefits that come with saving, there is a chance that the interest you receive is lower than the rate of inflation and so, when it comes to using your money, it has less buying power. In recent years, inflation has grown at a faster rate than interest proving that sometimes, savings are not always the right option.
What is Investing?
Many people hear of investing and hear of the possible returns and think that it is a feasible and easy option but that is not always the case. There is a risk that comes with investing which means that your money could decrease in value, while there is no guarantee that you will get back the money you invested.
The most common forms of investment products are pension, stocks and shares, all of which can provide a tax-efficient place to put your money but as mentioned, they do come with risks. When you invest, your money goes directly into investments such as bonds, property or stocks and shares.
Find the Perfect Blend
Your financial goals will ultimately determine whether you do invest, however, you don’t have to choose between investing or saving because you can find the perfect blend of both. Over the short term, a savings account can be the right choice but you can also choose to invest. However, finding the right blend and making the right decision will require expert advice and knowledge.