What is the Difference Between Savings and Investments?

There are lots of people that will use the terms savings and investments interchangeably, but there are some really big differences between them. It is a good idea to make sure that you are aware of the differences as this could be vital when you are making decisions about what to do with your money.


When you use a savings account, then you will always get back the money that you have put in and hopefully a little extra as well. This will be an interest payment that the company you use will give you. When you take out an investment you are buying something with the money. This could be something like shares in a company, a home or some artwork. When you sell the item, you will get back the value of it, which could change over the time that you have held it for. This value could go up or down and this means that there is a risk that when you want to get your money back, you will get back less than you put in. You could get more, but it is very important to be aware of the risk. If you need the money, then it is best not to invest it as there is a chance that you may lose it. It is even possible for some investments to go down in value so much that they are worth nothing at all. Although this is rare, it is worth keeping that in mind and making sure that you properly assess the risk of what you are doing. You will find that the risk will differ, depending on what types of investments you make and you can spread the risk as well by changing what sorts of things you put your money in to.


The return on savings tends to be quite low. Interest rates are at an all-time low at the moment and this means that savers get very little back. There are ways of increasing the amount of interest you get though by selecting specific types of accounts. Accounts that have instant access tend to have a low interest rate, but ones where you have to give notice on withdrawals tend to be higher. You will also find that you will be able to get more interest on an account if you tie the money up for a few years using a bond. It is worth investigating the different options that you have available to you as it will enable you to decide whether you feel it is worth putting your money in a higher paying savings account. However, if you look into investments, you will find that the return can potentially be even higher. On average it is likely that many types of investment will give a much bigger return than savings accounts.


You will find that you will be advised to invest money for a significant period of time. It is often the case that you will find that it will be best to invest money for at least five years if not ten or a few decades. This is because investments tend to fluctuate in price and so they will go up and down. You will want to try to sell your investment when the price has gone up significantly and the best way to give the item the highest chance of going up in value is to keep the money invested for a significant period of time. With a savings account, you will normally find that you will get a fairly consistent amount of interest and it might be fixed for a few accounts but normally will just fluctuate a little but if the Bank of England change their base rate.

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