Guidance

What is the difference between saving and investing?

What is the difference between saving and investing?

Although the end goal of both activities is simply to grow your wealth, saving and investing are quite different.

When you open a savings account, you start by depositing a lump sum and then contributing regular amounts over time. Your money should earn a fairly stable rate of interest and you can typically make withdrawals if you need to.

Investment values can rise and fall

Investing also requires a lump sum to get started, which you might use, for example, to purchase your first shares. You can then contribute extra over time by buying more shares or you can ‘withdraw’ your money by selling some of your shares.

And like the interest earned in a savings account, your share investments may also give you an income in the form of dividends. Or, if you have an investment property, you may earn an income through the rent your tenants pay.

However, unlike a bank account, your investments also have the potential to grow or fall significantly in value – sometimes quite rapidly. This means you have the chance to make a lot more money than you can just by saving your cash, but it also opens you up to the risk of losing your money.

Think in years, not months or days

The aim would be to make money on an investment by buying it at one price and selling it at a higher price that covers your costs and still delivers you a profit.

But markets rise and fall in value all the time and not even experts claim they can 100% predict where prices will go from one day to the next.

For most investors, it can be wise to consider the long-term when investing, make sure you know your personal risk appetite and work towards reaching your personal financial goals over time.

This article is intended to provide general information only and does not take into account your individual objectives, financial situation or needs. Past performance is not necessarily indicative of future performance. You should seek independent financial and tax advice before making any decision based on this information.