Investing vs Savings

There’s no one-size-fits-all answer to saving versus investing. The best option depends on your goals, your timeline, and what you want your money to do. However, there are a few things to consider.

Inflation does more than push up the cost of everyday things. It also quietly erodes the purchasing power of your savings over time. If your savings account pays you 3% interest but inflation is running at 3.5%, your money is technically shrinking in terms of what it can buy. Your balance goes up; your purchasing power goes down. 

This is the core reason people invest over long periods of time. Shares, funds, or bonds have historically offered returns that outpace inflation. (Past performance is not a reliable indicator of future results).

Because investing is not a savings account with better rates. When you invest, the value of what you hold can go down as well as up, and you could get back less than you put in. If the market has a bad year (and it will, periodically, because that is how markets behave), you don't want to be in a position where you need that money, but you are having to access it during a market lull.

The general rule of thumb is cash savings are for the short term, investing is for the long term. An emergency fund covering three to six months of costs is typically held in easy access cash. Money you won't need for ten or fifteen years, like a future house deposit or retirement pot? That's where investing tends to make more sense, although it always depends on your individual situation.

Cash absolutely has a role to play. However, relying on cash products for every financial goal, regardless of your time horizon, may mean your money grows more slowly than the cost of living, leaving you with less purchasing power than you started with.

The smartest move is not choosing one over the other. It is understanding what your money needs to do, over what time horizon and using the right tool for the task.