Saving vs Investing

Having extra money is always a good thing - whether you need it for your child's education, for your retirement or to have money when you go on holiday.

But while they're both good to do, saving and investing are two different things. Saving is usually done to create assets with a specific goal in mind, such as saving for a holiday or having money for emergencies. Investing, on the other hand, is about growing assets that you already have, which means managing your existing wealth in the longer term.

Here are some other key differences between the two:

1. Length of time

When you save, you usually do so for a relatively short amount of time, and for a specific goal that's not too far in the future - such as going on holiday at the end of the year, or having money available for emergencies. In contrast, investing can help you reach bigger long-term goals like paying for your child's education or saving for your retirement. For this reason, you'd typically invest for a longer period of time, whether it's ten years, twenty years or more.

2. Access to your money

When you save money in a bank account, you can usually access the cash relatively quickly if you need it. When you invest your money, you're intending to put it away for a longer period of time, so it can be harder to access it quickly (or you may have to pay a fee to do so).

3. Amount of risk

If your money is in a savings account, there's very little risk of anything happening to it. But then it also won't grow by a huge amount. In contrast, if you invest your money, there's a bigger chance you'll make more on that investment or lose money on it, depending on what the market does. If you're willing to wait out tough market conditions, and leave your investments intact, the lows and highs should even out.

4. Return on your money

Although you'll earn some interest on money in a savings account, this amount will generally be lower than the return you'll make on an investment over a longer time period. This is partly because your investment value may increase over time, which means the overall amount it's worth will be higher than keeping a set amount of money in the bank and earning interest.

Both saving and investing are important when it comes to having a firm financial plan in place. But they're different tools, used for different time periods and different goals.

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