There’s no denying that both saving and investing are important factors in shaping people’s financial futures. So, asking yourself if saving money vs investing is the right thing to do for you as an individual, is a valid question to explore.
Although both saving and investing have their own wealth-building attributes, the pros and cons are worth knowing. Which method you choose to grow your money will depend on a variety of factors — and we’ll run through them in this article to help you decide which is right for you.
Saving vs investing: what’s the difference?
Saving is the simple act of putting money aside for the things you want in the future; whether that's a holiday, new car, your first home — or simply for your peace of mind in case an emergency happens.
Typically, when you put your money in a savings account with a traditional bank or building society, they'll use your money to lend to other customers. And in return, not only are you guaranteed to get back what you saved (most financial service companies like this are typically regulated by the FSCS for up to £85,000 of your cash even if they went under), you’d also earn a little bit of interest on top.
Investing, on the other hand, is when you buy assets (like a company’s shares and government bonds) at a certain price, in the hope the value will go up over time — and you can take that as a profit (just like when you buy a house hoping it appreciates in value). There isn’t as much of a guarantee with investing; there’s always the risk that the value could go down, as well as up, so it’s possible you may get back less than you put in.
However, although returns aren't guaranteed, investing could give your money more potential to grow over the long term, because your returns won't be tied to fixed interest rates like savings are. Plus, there are tax-efficient benefits to products like a Stocks and Shares ISA that allow you to invest over a long period, without needing to pay Capital Gains or Income Tax on the profits you make.
Your tax treatment will depend on your individual circumstances, and it may be subject to change in the future.
It’s often assumed that you have to be a financial expert to invest — but that's no longer true!
Many platforms (like Wealthify) will do all the investing for you, offering a range of investment products to suit your needs, like Stocks and Shares ISAs and Ethical Investment Plans. But more on that later.
The key approach for this decision is to ask yourself whether you want to build your wealth for something in the short or long term. Investing, for example, is typically considered to be something you do for a longer timeframe to give you an opportunity to ride out market ups and downs. While saving money is generally considered more of a short-term financial plan, especially as factors like inflation can affect your money’s value when earning a less competitive interest rate over a long period of time.
Why should I save?
Weddings, presents, a new car, redecorating, a house extension, starting a family, travel plans — the list of important life goals is extensive!
However, a key consideration to factor into your financial planning is having a rainy-day fund (also known as an emergency fund).
If you lose your source of income, or the boiler breaks down and needs replacing, knowing there’s a pot of cash to
cover these unplanned expenses can be reassuring. And yet, there are too few people putting money away: in fact, 46% of people in the UK have £1,000 or less in savings – and 25% have £200 or less saved for a rainy day – suggesting that they would struggle to cover themselves for more than a month’s worth of living expenses.[1]
Living without any savings is likely to stress you out and harm your financial future by preventing you from reaching your goals. So, consider putting some money away if you can; experts suggest between three to six months of your essential outgoings.
But that can be a challenging amount to build up to; so if you’re looking for a short-term solution to put your mind at ease, various types of insurance could bring you a bit of peace.
Boiler breakdown is pretty self-explanatory, but there are lesser-known policies to consider like Income Protection insurance. This type of cover could ensure you get a fixed amount of income if you became unable to work, or faced a sudden redundancy before your emergency fund was built up.
Types of savings accounts
Instant or easy access accounts
As the name suggests, these accounts allow you very quick access to your money. A sensible benefit for a savings pot that’s specifically for a rainy day or sinking funds (for life’s inevitable expenditure; new tyres for the car, haircuts, stag or hen dos, money for gifts, school uniforms for the kids, etc.).
Fixed rate accounts
This is when you lock your money in for a fixed period of time, like a year or two. This type of account wouldn’t be the go-to for an emergency fund, but it might be good for a savings goal that you’d like to remove the risk of dipping into earlier than intended.
Cash ISAs
Tax-efficient savings accounts; these let you deposit up to your annual ISA allowance (currently set at £20,000 per tax year, although this could be subject to change in the future). Any interest you make on top of your deposits is tax-free.
Lifetime ISAs
Another tax-efficient savings account, but this time for first-time home buyers or those saving for retirement.
These let you deposit up to £4,000 of your annual ISA allowance per tax year (this doesn’t restrict you from saving the remaining £16,000 in other types of ISA accounts by April 5th). An excellent benefit of Lifetime ISAs is that any deposit to this account is topped up by an extra 25% from the government, making them very popular with people saving a deposit to take their first step on the property ladder.
Junior Cash ISAs
Saving for your little one? A Junior Cash ISA lets you save up to £9,000 per tax year (subject to change in the future) for your child using their own personal ISA allowance — rather than affecting yours. The interest that builds up is tax-free, and the child will have complete access to the funds when they turn 18.
Why should I invest?
Retirement. Financial security. Generational wealth to pass down to your family. Buying your forever home.
As investing is typically seen as a way to achieve longer-term goals, it’s unlikely you’d use your portfolio to fund any goals you want to achieve in the next 5-10 years.
That’s because by leaving your money invested over a long period of time, you’re more likely to be able to ride out the market's inevitable highs and lows. Investing is a long-term mindset — the pros of which being the potential to beat the inflation rates that your savings might not be able to fend off as efficiently.
However, as mentioned earlier in the article, there are risks.
While the goal with investing is to build wealth, you have to enter into it knowing there’s a possibility you could get back less than what you’ve put in.
Many people approach investing only after clearing any high-interest debt and having an emergency fund in place; essentially, only investing money they’d feel comfortable risking, should markets take a downturn.
Generally though, investing in different types of assets like an index fund (where smaller amounts of your money is split between things like shares and bonds) is considered to be less risky than investing in just one type (e.g. a single company’s shares).
In short, it’s best to consider the golden rule when deciding whether to invest or save: save for what's around the corner — but invest for the future.
Types of investments
Stocks and Shares ISA
If you’d prefer to put your money to work in an investment account – rather than earning interest on savings – then a Stocks and Shares ISA may be a good option to consider. Wealthify offers this type of investment account, without the hassle of managing the buying and selling of investments — our expert Investment Team does that for you.
With investing, your capital is at risk. Please remember the value of your investments can go down as well as up, and you could get back less than invested.
As this is an ISA, you’re able to use your £20,000 per tax year allowance towards this investment account. You can also split part of your allowance, so some goes into a savings ISA and some into an investment ISA — as long as the combined amount doesn’t surpass the £20,000 allowance limit (remembering that Lifetime ISAs are capped at £4,000 per tax year).
General Investing Account
General Investment Accounts (GIAs for short), are a good option for investing if your annual ISA allowance has been maxed out for the tax year. They don’t offer a tax-free benefit like an ISA does, but you could use this account to continue investing in the meantime, before the new tax year comes around on April 6th and your ISA allowance resets.
In the UK, your Personal Savings Allowance is defined by your income tax band, meaning when you earn interest on your savings or gains on your investments, you’ll have a cap of how much you can earn before HMRC deems that you to pay tax on this (read more about that in detail here):
Your tax treatment will depend on your individual circumstances, and it may be subject to change in the future.
General Investing Accounts with Wealthify offer all our great features like choosing your investment style, and your money being managed by our expert Investment Team for a low annual management fee (0.6%).
You can open one from as little as £1 — so why not visit our General Investment Account page to get started?
With investing, your capital is at risk. Please remember the value of your investments can go down as well as up, and you could get back less than invested.
Personal Pension
Many pension schemes are designed to invest your money on your behalf. While some are out of your control, you can transfer past pension pots into schemes that offer you more flexibility.
Some will focus on more aggressive investment styles during your younger years to try and build your pot’s total. Ass you get closer to retirement age, they’ll then employ a more cautious investing style to help shield the money you’ve built from unnecessary risk.
If long-term investing for your retirement sounds like a decision you’d like to make, Check out our Self-Invested Personal Pension.
Junior Stocks and Shares ISA
With investing generally considered a long-term goal, it makes sense that many people want their future financial planning to involve building wealth for their children. A Junior Stocks and Shares ISA, like the one Wealthify offers, is a way to do this before the account becomes accessible to them on their 18th birthday.
With our Junior ISA, you can invest up to £9,000 per tax year on their behalf without it affecting your own adult allowance of £20,000 (amounts subject to change in the future), invite close friends or family to be contributors if they wish — and also decide whether an Ethical Investment Plan is a better choice for your little one.
Before Junior ISAs were launched in 2011, Child Trust Funds were in place as a scheme to save or invest for your children. However, as Child Trust Funds are no longer available to open, many parents or guardians that manage a Child Trust Fund choose to transfer to a Junior ISA (like the one Wealthify offers) instead. The transfer process is simple, but you can read more about those considerations here: CTF and Junior ISA Transfers.
Please remember with a Junior Stocks and Shares ISA, your capital is at risk and your child could get back less than invested.
How does inflation affect saving and investing?
Inflation has been on the minds of many people over the past few years. And if you’ve found yourself pulling the purse strings during the recent cost-of-living crisis, you may be wondering how to beat inflation the next time around.
Many people favour investing over savings accounts as a way to counter inflation; seeing it as a long-term financial growth strategy, while the interest rates for savings only rise and fall in line with the Bank of England’s rate.
Keeping your money in a savings account for 20 years means that your growth is restricted to the interest rate. Whereas, investing for 20 years could provide more room for growth if you’re prepared to weather the risks it comes with.
How much money should I save before investing?
Think of it more like which goals should I have ticked off the list before I invest.
Ask yourself if you have:
- Any high-interest debts (above 8%) paid off;
- An emergency fund of three-six months’ worth of essential outgoings;
- The short-term goals you want to achieve in the next five years covered (e.g. a savings plan for a big holiday);
- A budget that takes into account your sinking fund costs (which could be anything from Christmas presents to MOT costs)?
The exact amount will be unique to you. But once these are covered, you’re likely in a position to have excess money that you could invest without it affecting your short-term financial focuses. Due to the riskier nature of investing, it’s better to use money that you can comfortably afford to risk, rather than money that you might need to spend sooner.
If you feel you’re already in a good position to put some expendable cash into your long-term investment goals, then you could get started with a Wealthify Stocks and Shares ISA or General Investment Account from as little as £1.
Am I ready to invest?
If you're considering investing but are unsure if now is the right time, here are some questions to reflect on and help you make your decision.
- How would you feel if your investments lost you money, instead of gained?
There’s always a risk when it comes to investing that you might not get back as much as you put in. Although the overall aim is for your investments to rise in value; some people find it too risky for their comfort level. Ask yourself what your honest reaction would be.
- What would be your long-term goals for the money you’d like to invest?
As mentioned, investing is a long-term commitment. It’s sensible to approach investing with a minimum time frame of 5-10 years (and even longer if you can!), as this would theoretically allow you time to ride out the inevitable ups and downs of markets and let your wealth have a chance to build.
So, whether it would be to pay off the mortgage early, or travel around the world in 80 days — ask yourself what you’d like to be doing with this money that far into the future.
- How much are you contributing to your pension?
On that note, if ‘retiring in style’ is part of your long-term plans, and you’re already paying into a pension scheme — then that money is likely being invested on your behalf. Congratulations, because if this is the case, it means you’re already an investor.
You can save/invest as much as you’d like towards your pension, but there are some points about tax to take into consideration:
- You’re usually entitled to tax relief on up to 100% of your UK earnings in a tax year, or £60,000 (whichever is lower).
- Note that the total amount you save in your pensions is limited by the annual £60,000* pension allowance (except for some high earners) – and this includes your personal contributions, your employer's contributions and the government tax relief top-up combined.
- If the amount you put towards a pension in a given tax year is more than your annual allowance, then you may need to pay a tax charge on the excess.
*The annual allowance is correct as of 2024/25 but could be subject to change in future years.
- Are you comfortable paying fees?
Different providers will charge different fees for their services — and as your investment pot builds, you’d be surprised by how high fees could impact the value of your portfolio. So, it’s best to do your research and compare costs.
At Wealthify for example, there are two types of costs and charges to be aware of when investing:
- A Wealthify annual management fee of 0.6% for investments (and if you’re using our Self Invested Personal Pension, this drops to 0.3% for any portion that’s £100,000 or above).
- And investment costs, which include fund charges that are taken directly by the fund provider, and market spread. You can read more about our fees and use our calculator tool here.
- Do you care about investing ethically?
Lastly, does it matter to you what type of company or assets you invest in? If you are on the fence about investing because you feel uncomfortable in supporting arms, deforestation, gambling, or other activities that are seen as having a negative impact on our societies and the environment; then investing ethically might be a better choice for you, rather than not investing at all.
If you’re ready to start your investing journey, visit our Stocks and Shares ISA or General Investment Account page to get started.
Wealthify does not provide financial advice. Please seek financial advice if you are unsure about investing.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.
Your tax treatment will depend on your individual circumstances, and it may be subject to change in the future.
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