Saving vs investing - which will make you more money?

We look at both sides of saving vs investing to help you decide what you want to do with your money

Left, a woman holding a glass jar filled with small change. Right, a tiny ladder leaning against a stack of coins
(Image credit: Getty images)

The rising cost of living is turning heads to other ways of making money, and with savings accounts and investments your money does the hard work for you, but which one is better, saving or investing? 

The long standing debate of saving vs investing just got harder as interest rates are giving a nice return on savings, but even though they are paying well rates, they’re not in line with inflation. 

And with the threat of a recession hanging over us, it’s a good time to review where you’re putting your money and if it’s working to your best advantage. 

Here we compare saving and investing.

Saving vs investing

Should I put my money in a savings account?

Saving is the sensible, grown up thing to do, well that’s what we were taught anyway. It’s the conventional way to reach your big purchase milestones like buying your first home or booking a holiday abroad. 

And it is always good to have savings in case you need the cash on a rainy day, especially now when food prices and energy prices are extortionate and taking all of our money with hardly anything left in our pockets. 

Putting money in a savings account is straightforward in that you put money in and earn interest on your balance, but there are different types of accounts which have different rules and restrictions. 

You have the choice of easy access savings accounts which let you withdraw money when you want, or regular savings accounts and fixed term accounts which have a few more restrictions. Rates on these different accounts differ based on the following:

  • How much do you need to pay in monthly 
  • What is the minimum and maximum amount you can put in the account 
  • Number of withdrawals 
  • Whether your a new or existing customer with that bank

Right now, the top rate stands at 5.25% on the Lloyds regular savings account which comes with quite a few caveats: you need to already be a Lloyds Club customer, have a Lloyds current account, put in at least £10 a month and no more than £400 a month.

With that rate if you ended up putting in £1,000 by the end of one year, you would earn £52.50 interest. 

Check the top rates in each saving category in our best savings accounts which is updated regularly. 

It’s important though that you note if you go for an easy access account, the rate is most likely going to be variable which means you might bag the best rate now, but in the matter of days the rate could drop.

Pros and cons of putting money in savings

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Easy access savings are great for emergencies.It can be timely to keep on top of the best rates and keep having to switch
If you want to save short term then a savings account is better suited. It the long-term you won’t get as much compared to investing your money
It’s lower risk. Depending on what type of savings account you go for, some come with many restrictions.
A lot more certainty on your returns if you go for a fixed saver., but less accessible.Interest rates are not in line with inflation, so your money is still worth less.

Will saving my money beat inflation?

Simply put, no. Inflation is currently at 10.1% and with the top rate at 5.25%, no savings account on the market matches the inflation rate. 

Saving your money in a savings account means your money is basically just sitting there losing its value, which means you have less spending power. 

For example a bar of chocolate two months ago might have cost 70p and now cost £1, so although you might be earning interest on your savings, it won’t be worth much in real terms as you're spending 30p more to buy the same bar of chocolate.

Should I invest my money?

Rupert Hargreaves, Deputy Digital Editor at MoneyWeek said: “Over the past decade, global equities have produced an annual return of 9.5%. So even with interest rates on savings accounts edging above 5%, equities could be the better long-term investment.”

In terms of how investing works is similar to savings- you’re putting money away. But the main difference is it’s high risk. 

Your money might be at a bigger risk but the return could be well worth it, as investing offers better returns. 

If you want to lock your money away over a long period of time, say 5 years, then investing is a better option than saving because your money will work harder in the long run. 

You need to be prepared to invest for a minimum of five years and never invest more than you can afford to lose,” Rupert adds. 

If you’re not confident in investing, it doesn’t mean you can’t invest. Your best bet would be to start dripping a bit of money into your investments over time. 

And be sure to do your research and read up on what to invest in. You can invest in:

  • Stocks
  • Funds 
  • Gold 
  • Property

As well as drip feeding your money overtime, don’t put all of your eggs in one basket. Spread your money out over different assets so if one is not doing so well and another is, you won’t feel a harsh effect from it.

Pros and cons of investing money

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Much like savings, you can protect your investments from tax in a stocks and shares ISA. Higher risk. Your investments can go down as well as up
Historically investments have led to a bigger return than saving if you keep your money in over a long period, but that isn't guaranteed in the future.Investing platforms have fees and you could be charged stamp duty when buying stocks.
Historically investments stand a better chance of staying in line with and even grow faster than inflation.Investing can get time consuming as you have to keep an eye on your investments.

The verdict

Ultimately, it’s all down to how long you’re willing to lock your money away and what you need it for.

If you have short term goals to reach like buying a new car or saving up for a new washing machine then a savings account is the best option. 

But if you’re willing to keep your money locked away for at least five years, then investing historically is more likely to make you more money - but it isn't guaranteed unlike a savings interest rate.

If it’s money you simply cannot afford to lose, a savings account is a safer bet. But if you have a little spare cash, investing it could pay off considerably in a few years time. 

A good approach is to hedge your best and do a bit of both. Tuck some money away into a savings account (ideally at least enough to cover six months of expenses if, for example you lost your job). And save a little each month into an investment account - ideally a stocks and shares ISA which will guarantee what you earn from your investments is tax free. 

If you’re a beginner, investing can be quite daunting and time-consuming - especially  if you’re picking funds and shares yourself. Our friends at MoneyWeek say you can reduce the time and hassle by either seeking out a financial adviser (worthwhile if you have a lot of money to invest) or you could consider a low-cost robo-adviser to create an investment portfolio for you.

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Vaishali Varu
Staff Writer

Vaishali graduated in journalism from Leeds University. She has gained experience writing local stories around Leeds and Leicester, which includes writing for a university publication and Leicester Mercury. 

She has also done some marketing and copywriting for businesses.

When she is not writing about personal finance, Vaishali likes to travel and she's a foodie.