Should I save or invest?

A guide to making the right choice for you.

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Saving and investing are both designed to help your money grow, but they come with different rules, risks, and returns. So is it better to save or invest? One approach is to make sure you’ve saved for a safety cushion first, then invest for goals that are years down the line. In this guide, we compare saving vs. investing to help you decide which option might best suit you.

Key takeaways

Short-term goals: If you need easy access to your money or are planning for goals in the next five years, saving offers a low-risk option with predictable returns
Long-term growth: For long-term goals, like retirement, investing has the potential for higher returns, but it comes with risks, including the possibility of losing your money
Savings or investments: One strategy is to save for an emergency fund and short-term goals, then invest for growth over the long term

What’s the difference between saving and investing?

The main differences between saving and investing are how much risk they carry and the gains to be made. Investing comes with the risk of losing some or all of the money you initially put in, and investments are usually exposed to the ups and downs of the markets. At the same time, as risk increases, so does the chance of a higher return. Saving is considered ‘safe’, because the risk of losing money is virtually non-existent, but this predictability comes at the cost of relatively low returns.

The second key difference is the type of financial goals that can be best achieved with saving vs. investing. If you’re simply looking for a separate place to stash a rainy day fund, a savings account will give you access to your money when you need it, and some interest, too. If you’re thinking longer term, and you’re happy to put aside funds for years, investing could be worth looking into.

The following table shows a brief overview of the main differences between saving and investing:

Aspect	Saving	Investing
Risk level	Low risk, guaranteed returns	Higher risk, potential for both gains and losses
Growth potential	Relatively low growth, but usually predictable	High growth potential, but not guaranteed
Access to funds	Easy access, minimal restrictions	Less liquid, usually longer-term commitment
Ideal timeframe	Short to medium-term (up to 5 years)	Long-term (5+ years)
Ideal for	Emergency fund, short-term goals (e.g. a summer holiday)	Long-term goals (e.g. retirement, wealth building)
Examples	Savings account, ISAs, fixed rate bonds	Stocks, ETFs, mutual funds, property
Inflation impact	Low returns may not keep up with inflation	Potential for higher returns that outpace inflation
Taxation	Tax-free options (e.g. ISAs)	Dividends and capital gains may be taxed

Saving vs. investing: Which is safer?

Saving is generally considered the safer way to grow your money. The money you keep in a savings account won’t lose value. Plus, if the bank or building society you save with goes under, the Financial Services Compensation Scheme (FSCS) protects up to £85,000 of your savings. However, saving isn’t entirely risk-free. Interest rates can change, and when they’re low, the return on your savings might be fairly modest.

Investing, on the other hand, comes with more risk. Investments are linked to market performance, so their value can go up or down. There’s no guarantee you’ll make money, and you could even lose some of what you initially invest.

If you’re wondering, “should I save money or invest?”, you might check whether your investment is FSCS-protected. With investing, it’s often sensible to take a long-term approach. A longer timeframe gives your investments more time to recover from any dips in value.

Is it better to invest or save right now?

It’s not always an either/or choice of saving or investing. Each can work well in different circumstances. The best option for you often depends on what you’re planning to use the money for.

When might saving be the better choice?

If you’re wondering, “should I save or invest?”, your decision will often come down to your savings goals and how soon you’ll need the money. If you’re likely to need your cash within the next five years, saving might be the better option because of the wide range of access options.

For this reason, saving might suit you if:

You’re working towards short-term goals of less than five years, for example, a wedding, a holiday, or even a mortgage on a home.
You want an emergency fund to cover those unexpected expenses, such as a car repair, a broken washing machine, or a sudden change in your income.
You prefer having quick and easy access to your money when you need it.
You appreciate the security of knowing your funds are protected should something happen to your bank. With savings in a bank or building society, your money is typically protected by the FSCS scheme.

Which savings accounts should I consider?

If you’re not sure when you’ll need to access your money, an easy access savings account or an instant access cash ISA might be suitable. That way, you know you can withdraw your cash at any point without penalty. However, if you do know when you’ll need the money, you might also consider fixed rate bonds. In return for locking away your funds for a fixed duration (typically from six months up to five years), you can usually earn slightly more on your funds.

It’s also possible to have multiple savings accounts for different goals. With Raisin UK, you can easily manage a range of easy access and fixed term savings accounts, all from one account.

When might you consider investing?

Investing offers the potential for long-term growth, but unlike cash savings, investments can rise or fall in value. If you are prepared to take this risk, you can potentially be rewarded with higher returns. At the same time, it’s not always a choice between savings or investments; both can be valuable for different purposes.

Here are some situations where you might think about investing:

You’ve already built up a cash safety net in a savings account. It’s generally recommended to have three to six months’ worth of essential expenses set aside in an emergency fund before thinking about investing.
You’re comfortable with the risks involved. You could see your money grow, but there’s every chance you lose some or all of it.
You won’t need the money for at least five years. Investments can fluctuate in the short term, so a longer timeline gives you a better chance to see out any falls in the market.
You’re aiming for growth beyond what cash savings can offer. If you’re looking for higher levels of growth, investing might give you that opportunity.

What types of investments should I consider?

With investing, you’re putting your money into assets in the hope that they will increase in value and provide a return. For example, you might invest in shares of a company, either directly or through an investment fund, where your money is pooled with others. The company may then pay dividends to shareholders.

There are plenty of investment options to explore, from stocks and bonds to property and index funds. If you’re new to investing, it’s worth starting with some research to understand the different investment options available.

If you’re still asking yourself, “should I save or invest?”, or you want guidance tailored to your situation, speaking with an independent financial adviser could be helpful. While there’s a cost involved, it might give you the clarity you need to decide whether saving or investing (or a combination of both) is right for you.

Should I save or invest to beat inflation?

Inflation is an important consideration in the saving vs. investing debate. It’s the rate at which prices rise for goods and services. So if the interest on your savings is lower than inflation, the value of your money gradually decreases, even though your balance stays the same. Essentially, your money loses its buying power over time.

And that’s why investing often works better for long-term savings goals. If you’re looking at a 10-year or longer timeframe for your financial goals, inflation will likely have a bigger effect. But investing in stocks is one way to potentially ‘beat inflation’, as it has historically provided higher returns than cash savings. However, remember that past performance doesn’t guarantee future results, and investing always involves risks due to its unpredictable nature.

You can find out more about how to protect your savings from inflation.

What’s the best age to save or invest?

There’s no ‘best’ age to start saving or investing – it really depends on your situation. Many people start by putting money into a savings account, and later move on to investing. Parents or guardians often set up a savings account for children, and once they turn 18, the child can open their own account and decide how to manage their money.

If you’re 18 and can afford to put money aside for the long term, and you’re comfortable with some risk, investing could be an option. Many younger investors are drawn to exchange traded funds (ETFs), which allow you to diversify across different assets, since these tend to be easier to get started with.

As you get older, your saving or investing strategy may change. For example, those coming up to retirement might scale back or sell off some investments to ensure they have access to their money when needed. And remember, you don’t always have to ask yourself, “should I save or invest?” – you can do both.

Save your money securely with Raisin UK

If you want to grow your money without putting your wealth at risk, opening a high-interest savings account could be the best way to reach your goals. You can access a range of competitive savings accounts through the Raisin UK marketplace. You first need to open a Raisin UK Account; then you can apply by logging in, applying for a savings account, and transferring your deposit.