Saving vs. investing
The golden rule is to save for the short term and invest for the future.
What is saving?
Putting cash aside in a savings account is a convenient way to save for short term goals such as a holiday or emergency fund, since it is relatively risk-free and you get a stated rate of interest. However, if you leave cash in a savings account for a long period of time, you’ll effectively end up losing money. This is because interest received on cash savings is relatively low and it’s unlikely to keep pace with inflation (the rising cost of living).
What is investing?
Investing in the stock market gives you the potential to grow your money significantly faster than inflation and savings accounts, albeit with higher risk. The value of investments can fall as well as rise, but if you’re in it for the long term, your investments will have longer to recover if the market takes a dip.
So while saving takes care of the short term, investing can help you plan for the future by making your money work harder. It makes sense to have a mix of the two.