Saving vs investing
There’s a time and a place for both saving and investing. As two important financial tools, they don’t compete against each other, they complement one another. Saving helps to fund short-term goals and provides cash liquidity, while investing is typically used to pursue longer‑term growth and keep up with rising inflation over time.
Deciding whether to save or invest depends on your time horizon, risk tolerance, and the role money plays in your broader financial plan.
In this article we’ll cover:
What is saving?
Saving is putting aside some of your money for the future. Usually, saving is suitable for short to mid-term financial goals or when you need a low-risk solution. The benefits of savings include greater financial security, reduced reliance on costly short‑term funding and stronger risk management.
When paying your money into a savings account, you may earn interest on your money. This is a percentage of your savings, for example 2%, that is paid into the account either monthly or annually. However, when interest rates are low, the return you earn on savings can feel modest.
If you’re saving mid to long-term, compound interest can make a meaningful difference. This means you’ll earn interest not only on the money you deposit, but also on the interest your balance has already earned.
Over time, that 'interest on interest' effect can help your savings grow faster, especially if you keep adding to your account and leave the balance to grow.
Putting money into savings may be suitable for people who:
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Need or want easy access to their money
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Prefer a low-risk approach with their money
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Like the relative safety and predictability that savings provide
What is investing?
When you invest, you’re putting money into something where you believe the value will change over time. This could be things like property, stocks and bonds in the hope that the value of these things will rise.
If the value of investments rises or falls, your money does too. This is one of the main risks of investing. However, the longer you invest, the more chance your money has to potentially grow. People often invest when they hope to make greater returns than they could by keeping their money in savings.
However, historically markets have rewarded patient investors over longer horizons. Investing is typically most effective when aligned to a clear objective, an appropriate time horizon, and a diversified strategy that reflects your risk profile.
Investing money may be more suited to people who:
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Are comfortable taking the risk that the value of their investments could go down as well as up
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Have money to spare and are able to set money aside for the medium or long term
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Want to take a risk that they could make potentially better returns on their money than they could achieve by putting it into savings accounts
Explore: How to begin investing
What is a time horizon?
A helpful way to choose between saving and investing is to start with your time horizon. Simply put, this is how soon you’ll need the money.
Short-term (0 to 3 years) - Saving is often more appropriate for goals like an emergency fund, a down payment you’ll use soon, or upcoming tuition payments. The priority is typically stability and access, not maximizing returns.
Medium-term (3 to 7 years) - This can be a “gray zone” where people use a combination of saving and investing. Typically people would keep near-term needs in cash and invest a portion for goals that are flexible on timing.
Long-term (7+ years) - Investing is often considered for goals like retirement or long-range wealth planning, because you generally have more time to ride out market ups and downs and benefit from potential long-term growth.
Let’s bring this to life with a simple financial illustration:
| Saving | Investing | |
|---|---|---|
| Amount deposited on opening | $25,000 | $25,000 |
| Amount paid in each month | $100 | $100 |
| Average return (based on historical averages) | 3% interest | 7% growth |
| Total increase on $25,000 | $22,600 | $41,500 |
| Total balance after 10 years | $47,600 | $66,500 |
| Amount deposited on opening | Amount deposited on opening | |
|---|---|---|
| Saving | $25,000 | $25,000 |
| Investing | $25,000 | $25,000 |
| Amount paid in each month | Amount paid in each month | |
| Saving | $100 | $100 |
| Investing | $100 | $100 |
| Average return (based on historical averages) | Average return (based on historical averages) | |
| Saving | 3% interest | 3% interest |
| Investing | 7% growth | 7% growth |
| Total increase on $25,000 | Total increase on $25,000 | |
| Saving | $22,600 | $22,600 |
| Investing | $41,500 | $41,500 |
| Total balance after 10 years | Total balance after 10 years | |
| Saving | $47,600 | $47,600 |
| Investing | $66,500 | $66,500 |
Important: This example is for illustration only and isn’t a guarantee of future results. Saving interest rates and investment returns can change, and investments can lose value, especially over shorter periods, so the best option depends on how soon you’ll need the money and how much volatility you’re comfortable with.
Saving vs investing: Comparison table
| Topic | Saving | Investing |
|---|---|---|
| Primary purpose | Short term needs and planned large purchases | Longer term goals (eg a college fund) and building wealth over time |
| Typical time horizon | A few months to a few years | Usually 5+ years |
| Where the money is held | Deposit accounts | Assets such as stocks, bonds, funds/EFTs |
| Potential return | Generally lower and more predictable | Generally higher but not guaranteed |
| Risk | Typically lower risk | Typically higher risk |
| Access to money | Usually easy access | May take time to sell investments and release funds |
| Inflation | Savings may struggle to keep up when inflation is high | Investing may help outpace inflation over the long term |
| Best for | Emergency fund, short term goals, stability | Building wealth long term goals, retirement |
| Good habits | Regular deposits to benefit from compound interest | Diversify, invest regularly, stay consistent through market ups and downs |
| Key factors | Returns may be modest when interest rates are low | Market can be volatile and fees may apply |
| Topic | Primary purpose | Primary purpose |
|---|---|---|
| Saving | Short term needs and planned large purchases | Short term needs and planned large purchases |
| Investing | Longer term goals (eg a college fund) and building wealth over time | Longer term goals (eg a college fund) and building wealth over time |
| Topic | Typical time horizon | Typical time horizon |
| Saving | A few months to a few years | A few months to a few years |
| Investing | Usually 5+ years | Usually 5+ years |
| Topic | Where the money is held | Where the money is held |
| Saving | Deposit accounts | Deposit accounts |
| Investing | Assets such as stocks, bonds, funds/EFTs | Assets such as stocks, bonds, funds/EFTs |
| Topic | Potential return | Potential return |
| Saving | Generally lower and more predictable | Generally lower and more predictable |
| Investing | Generally higher but not guaranteed | Generally higher but not guaranteed |
| Topic | Risk | Risk |
| Saving | Typically lower risk | Typically lower risk |
| Investing | Typically higher risk | Typically higher risk |
| Topic | Access to money | Access to money |
| Saving | Usually easy access | Usually easy access |
| Investing | May take time to sell investments and release funds | May take time to sell investments and release funds |
| Topic | Inflation | Inflation |
| Saving | Savings may struggle to keep up when inflation is high | Savings may struggle to keep up when inflation is high |
| Investing | Investing may help outpace inflation over the long term | Investing may help outpace inflation over the long term |
| Topic | Best for | Best for |
| Saving | Emergency fund, short term goals, stability | Emergency fund, short term goals, stability |
| Investing | Building wealth long term goals, retirement | Building wealth long term goals, retirement |
| Topic | Good habits | Good habits |
| Saving | Regular deposits to benefit from compound interest | Regular deposits to benefit from compound interest |
| Investing | Diversify, invest regularly, stay consistent through market ups and downs | Diversify, invest regularly, stay consistent through market ups and downs |
| Topic | Key factors | Key factors |
| Saving | Returns may be modest when interest rates are low | Returns may be modest when interest rates are low |
| Investing | Market can be volatile and fees may apply | Market can be volatile and fees may apply |
Deciding whether to save or invest your money is a matter of personal choice, and should be based on your financial goals, as well as your personal attitude toward risk. For many people, the answer is a tailored blend of the two.
Explore: Investing in your future
