Whatever your goals, saving and investing are ways to tuck away money now, for the chance to have more in the future.
Saving tends to be for the short term, while investing is for longer term. In the short term, it’s a good idea to build up ‘rainy day’ cash savings you can easily withdraw if you need to. Longer term, you might want to consider investing as a way of growing your money.
Below are the differences, so you can decide what’s right for you. This article isn’t personal advice, so if you’re not sure what to do, please seek advice.
Saving – I need the money within 5 years
While cash savings won’t fall in value, they’re not risk free. Cash often struggles to keep up with rising prices, or inflation, so you can lose money in real terms.
How inflation can affect your savings:
 | MILK |
| 1990 | 2024 |
| 29p | 66p |
| FOOTBALL TICKET |
| 1990 | 2024 |
| £5 | £41 |
Source: Office of National Statistics and Statista
When should I save?
- You’ve got a short-term goal in mind, like a holiday, wedding or even a house purchase
- It’s your just-in-case money – if the boiler breaks, or you’ve had a change in circ*mstances
- You want to be able to access your money straight away
More on how much cash you should hold
If you’re looking to boost your cash returns, the Active Savings service could help. Choose from a range of easy access and fixed term products to hold your different savings pots under one roof.
We also offer a Cash ISA if you're looking to shelter your cash savings from UK income tax. Tax rules for ISAs can change and their benefits depend on your personal circ*mstances.
More on the Cash ISA
Investing – I won’t need the money for 5-10 years
Investing involves spreading your money across different areas which aren’t cash. It can help you to grow your money over the long term. But unlike the security offered by cash, investments can fall as well as rise in value, so you could get back less than you invest.
Here are some of the main ways to consider investing your money:
- Shares – you’re buying a part of a company, in exchange for a share in how it performs. They trade live on a stock exchange, where different companies are bought and sold.
- Bonds – issued by companies or governments, to help them finance their processes. In simple terms, you’re buying a portion of their debt – hopefully in exchange for an interest payment and your money back at the end.
- Property – sometimes called real estate. It often refers to commercial instead of residential property.
- Funds – individual investors give their money to a fund manager – who invests all the money, choosing investments on everyone’s behalf based on the fund’s objectives. They aim to grow the money over time, produce an income, or a combination of both. You’ll pay a fee to own a ‘unit’ in a fund, in exchange for the manager’s expertise and time spent looking after your money.
When should I invest?
- When you’re willing and able to accept a level of risk – and won’t need the money for at least five years. With investing, there’s no guarantee of making money and you could get back less than you invest
- When you want the chance to grow your money more than you could with cash
- After you’ve saved a supply of cash you can access easily for emergencies. As a general rule, we suggest holding 3-6 months worth of essential expenses if you're working, and 1-3 years if you're retired
The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised and regulated by the Financial Conduct Authority (firm reference number 915119).
Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money.Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are subsidiaries of Hargreaves Lansdown plc (company number 2122142).
FAQs
A savings account is the ideal spot for an emergency fund or cash you need within the next three to five years. Good for long-term goals. Investing can help you grow money over the long term, making it a strong option for funding expensive future goals, like retirement.
Should I save or should I invest? ›
Saving is generally seen as preferable for investors with short-term financial goals, a low risk tolerance, or those in need of an emergency fund. Investing may be the best option for people who already have a rainy-day fund and are focused on longer-term financial goals or those who have a higher risk tolerance.
How much of your income should you save or invest? ›
For many people, the 50/30/20 rule is a great way to split up monthly income. This budgeting rule states that you should allocate 50 percent of your monthly income for essentials (such as housing, groceries and gas), 30 percent for wants and 20 percent for savings.
When you are starting out is it more important to save or invest? ›
The simple rule: If you need the money in the next three years, then save it ideally in a high-yield savings account or CD. If your goal is further out, or you don't have a specific need for the money, then start thinking about investing in something that will grow more, like stocks or bonds.
Is it really worth it to save money? ›
Saving money is a cornerstone of financial well-being, providing stability, security, and opportunities for long-term growth. Whether you're saving for emergencies, future expenses, or retirement, cultivating a habit of saving is essential for achieving financial independence and realizing your goals.
Why saving is better than investing? ›
Saving typically results in you earning a lower return but with virtually no risk. In contrast, investing allows you the opportunity to earn a higher return, but you take on the risk of loss in order to do so.
Why should you invest? ›
Investing can bring you many benefits, such as helping to give you more financial independence. As savings held in cash will tend to lose value because inflation reduces their buying power over time, investing can help to protect the value of your money as the cost of living rises.
What are two reasons to save instead of invest? ›
Saving provides a safety net and a way to achieve short-term goals, while investing has the potential for higher long-term returns and can help achieve long-term financial goals. However, investing also comes with the risk of losing money.
Why save before investing? ›
Savings should come first. Before investing, try to make sure you have a separate low-risk, low-return account you can use to cover expenses during an unforeseen event — typically at least three to six months worth of living expenses.
How do you know if you should invest or not? ›
Financial Navigating in the Current Economy: Ten Things to Consider Before You Make Investing Decisions
- Draw a personal financial roadmap. ...
- Evaluate your comfort zone in taking on risk. ...
- Consider an appropriate mix of investments. ...
- Be careful if investing heavily in shares of employer's stock or any individual stock.
Saving $1,000 per month can be a good sign, as it means you're setting aside money for emergencies and long-term goals. However, if you're ignoring high-interest debt to meet your savings goals, you might want to switch gears and focus on paying off debt first.
Is saving $500 a month good? ›
The short answer to what happens if you invest $500 a month is that you'll almost certainly build wealth over time. In fact, if you keep investing that $500 every month for 40 years, you could become a millionaire. More than a millionaire, in fact.
Should I hold cash or invest now? ›
To determine which investment is best for you, pinpoint your time horizon, risk tolerance, and liquidity needs. Cash equivalents are usually best for short- and medium-term financial goals, while bonds and stocks are better for medium- and long-term ones.
What is the 50 30 20 rule? ›
Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
Is it better to invest or save for down payment? ›
What I advise my clients is that if you need the down payment within 12–18 month do not put your money at risk in the stock market and keep it in a savings account (although you could do a little better than a typical savings account).
How much money do I need to invest to make $3,000 a month? ›
Imagine you wish to amass $3000 monthly from your investments, amounting to $36,000 annually. If you park your funds in a savings account offering a 2% annual interest rate, you'd need to inject roughly $1.8 million into the account.
Should I save or invest in my 20s? ›
Start saving and investing today.
When you're in your 20s, time may be your most valuable asset. Consider saving 10% to 15% of your pre-tax income for retirement, but even if you only have a smaller amount to invest each month, it may still be worth it. Time in the market is key. Get started as soon as you can.
