Saving vs investing

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 or a holiday. Or building a savings pot to cover any emergencies or unexpected costs you might face.

You can build your savings in one-off or regular payments. And if you choose to save using an easy-access savings account, you can get back what you put in, 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. You also need to 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 where you believe the value will change over time. It can involve buying assets such as stocks, bonds, mutual funds or property, with the expectation that your investment will make money for you over a given period.

You invest money usually when you hope to make greater returns than you could by keeping your money in savings. There is a risk, however, 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:

Deciding whether to save or invest your money is a matter of personal choice, and 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 needn’t be exclusively 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. They believe it’s important to know that their investments are aligned with their own values, which is why they look to make sustainable investments.

Sustainable investing covers a wide spectrum. It might include:

Investing sustainably doesn't have to be at the expense of potential financial returns. In fact, a Harvard study¹ found that companies with good ratings on sustainability issues most relevant to their industries, significantly outperformed companies with poor ratings on these issues.

So should you save or invest? That's a very personal decision that you can only make after considering all the pros and cons and seeing if it's right for you. Whether to save or invest 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 if interest rates are 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 money may provide a better chance of achieving higher returns than keeping your money 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, like saving for retirement, taking a degree of investment risk could earn you a greater return.

Check out these great tips to help you understand investing.

_{¹Corporate Sustainability: First Evidence on Materiality, by Mozaffar Khan, George Serafeim, and Aaron Yoon; Harvard Business School}