Saving is putting aside some of your money for the future. It's a type of investing that is considered fairly low risk. You might be saving for something specific, like a new car, a house or a holiday. Or you might be building a savings pot to cover emergencies or unexpected costs you might face.
You can build your savings in one-off or regular payments. If you put your savings into an easy-access savings account, you can take out your money plus the interest you've earned whenever you want it.
Although saving is regarded as low risk, the returns you'll get on your savings from interest can be modest, especially when interest rates are low. Also remember that the rate of inflation can rise and reduce the real value of your savings and the interest you earn.
Putting money into savings may be suitable for people who:
Investing also involves setting aside money for the future. However, with investing, you're putting your money into something that you believe the value will change over time. It can involve buying assets such as stocks, unit trust (mutual funds), bonds or property, with the expectation that your investment will make money for you over a given period. You can also learn more about what is sustainable investing.
You invest money usually when you hope to make greater returns than you could by keeping your money in savings. However, this comes at a risk because your returns are not guaranteed and you might get less back than the sum you invested in the first place.
Investing money may be more suited to people who:
Whether you decide to save or invest your money is a matter of personal choice that should be based on your financial goals as well as your personal attitude towards risk.
If you're considering investing, you might be interested in sustainable options. Investing doesn't have to be solely about identifying opportunities that deliver the greatest financial profits. Increasingly, people want to know where their money is going and what it's being used for. If you believe it's important to know that your investments are aligned with your own values, you can consider making sustainable investments.
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How you allocate your money for saving or investing will depend on your individual circumstances and the financial goals that you have set yourself.
For short term financial goals, savings held in one or more savings accounts may be the sensible choice. You will have easy access to your savings when you need them, and there is little risk that you will lose your money. However, you should bear in mind that while interest rates may be low, returns on your savings may be modest. You also need to remember that any interest you earn may not keep up with inflation or increases in the cost of living.
For long term financial goals, investing your money may provide a better chance of achieving higher returns than keeping it in savings accounts. If you don't need to access your money in a hurry, and can afford to tie it up over a number of years, investing can offer a better chance of keeping up with or beating inflation.
For many people the answer is a blend of the two. For example, to build an emergency fund to meet unexpected costs, an easily-accessible savings account would seem a sensible option. However, to achieve long term financial goals such as saving for retirement, taking a degree of investment risk could earn you a greater return.