Are Investments Better than Savings?

If you have money available and you are looking to save or invest, then it is good to be fully aware of the differences before you start. Whether one is better than the other will be a purely personal decision and you will need to make sure that you think hard about what you do. It is wise to start by getting an understanding of the basic differences.

What are savings

When you have a savings account it means that you have money put into an account. It is likely that you will be paid interest on that money by the bank of building society that you have used to put the money in. The interest varies between places. If you have the money in an instant access account, meaning that you will be able to get hold of the money really quickly, you will get paid a low amount of interest, probably less than inflation. If you are prepared to tie the money up, perhaps for several years or to give notice before you make a withdrawal, then you will be able to get higher interest on the money. You will always be able to get back all of the money that you have saved.

What are investments

Investments are very different to savings. We effectively buy something with our money which we hope will increase in value. This could be a house, piece of art, shares in a company or stocks. We hope that when we need the money back, that it has increased in value and so we will be able to benefit from it. Investments have the potential to pay back a much bigger return than savings accounts. The stock market typically has given a return of an average of about 10% over the whole time it has existed but it obviously goes up and down a lot and has crashed a few times. Houses also tend to increase in value more than inflation but there are costs in keeping them maintained. With all investments there is a risk that the value may go down as well as up. This means that you could lose some money and end up with less than you put in. You may even risk losing everything you invest, but this is rare.

So, when you are looking to save or invest you need to think about whether you are prepared to lose the money. If you need the money and you cannot afford to lose it, then you are probably better off saving it so that you are sure that you will be able to get it when you need it. However, you might be willing to take a risk with your money, or at least some of it because you hope for a good return. With a risk there is a better chance of getting a better return. This means that you are possibly going to make more money but there is a chance that you will actually lose money. It can be a tricky decision. There are some investments that are riskier than others though and many people use a financial advisor to help them to make the best decision for them, taking into account how much risk they are willing to take and how much return they would like on their money. If you do not use an advisor then you will need to do a lot of research yourself and get a really good understanding of what options you have and how to choose the right investments before you buy. It can take a lot of time and you may like to read a lot of books, look at lots of websites and spend a lot of time making sure that you feel really confident before you do this.

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