Saving vs investing: which is better to help you make more money?

Building up savings for the future is important whatever your goal, whether that be to buy a property, pay for a wedding or to have enough to start a family. Even if you don’t have a specific goal in mind, it’s smart to put money aside for the future to give you some financial security and ultimately options when it comes to lifestyle choices.

Saving or investing for the future is for those who have disposable income each month – that is, money left over after bills and essentials are paid for. If you have debts – perhaps on your credit card or personal loan – you may want to set about clearing these before you start saving or investing for the future. It's important to consider inflation too, which erodes the true spending power of your cash.

There are choices to make on how you build up those savings and your wealth.

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What is saving?

Saving refers to the money you typically set aside in a separate account to your everyday current account once your bills and other essentials have been taken care of. The savings account will usually be with a bank or building society where it earns a rate of interest. The interest can be applied monthly or yearly and might be fixed or variable, depending on the account you have selected.

Your money is held by the bank or building society and can be accessed at short notice (unless it’s a fixed or notice period account).

It’s a low-risk way to grow your money as you’ll never get back less than you pay in (unless there are rules on withdrawals and you are penalised for exceeding the permitted number or don’t give notice on a notice account).

Plus there’s consumer protection to the tune of £85,000 per person, per institution against a provider going bust. This is provided by the Financial Services Compensation Scheme (FSCS).

As a rule of thumb, we should all aim to save at least three months’ worth of essential outgoings as an emergency buffer. This could cover unexpected costs such as a leak or car repairs – keep it somewhere where you can withdraw the money quickly if needed, like an easy-access savings account.

What is investing?

Investing is a different ball game. You can choose to buy shares in companies or invest in bonds or even property.

When it comes to shares you can buy some in individual companies that you choose yourself, or in several companies at once chosen by a professional by investing in a fund. Here your money is pooled with other investors and run by a fund manager who will buy and sell shares in companies they believe will deliver profits.

Investing in shares comes with some risk because the value can go up or down, but there's a chance for higher rewards compared to saving. Ideally the value of your investment will grow as the share price rises and you might also benefit from dividends – these are annual payments made to shareholders from profits as a thank you.

Ideally you should remain invested in shares for at least five years, but preferably longer. This is to give your money enough time to benefit from compound growth (where you earn returns on top of returns) and for there to be time for recovery from any short-term losses.

There are other types of investments. You can choose something lower down the risk scale and invest in bonds. With bonds you lend your money to a company or government, and it will pay you interest – sometimes referred to as a coupon – for a fixed period. When this ends – when the bond ‘matures’ – you get your original investment back.

The FSCS provides protection for investments too. The compensation kicks in if you lose money due to the provider of the investment product going bust or you’re given bad advice by an adviser who is no longer in business. You can’t make a claim for an investment simply not performing well. If you've put cash into an investment fund, you'll get 100% of the first £85,000 back. The amounts differ for investments made before 2019.

Saving vs investing – how do they compare?

There is a role for having both savings and investments – rather than one or the other.

But it’s important to understand the differences and role that each one plays. This table explains the basics:

Saving vs investing – where can I make more money?

History shows that returns from stocks and shares outweigh cash over the long term- though of course they come with more ups and downs along the way. Barclays publishes a report called the Equity Gilt Study, which compares returns on different assets. It shows that over longer periods shares have tended to beat cash and bonds.

The Barclays 2024 Equity Gilt Study shows that for over the last 130 or so years, the probability of shares providing better returns than on cash on any two-year basis was 70%, and this figure rose to 91% over 10 years.

Another study looking at a one-year period shows a vast difference in performance too. The average stocks and shares ISA fund experienced a growth of 11.86% between February 2024 and February 2025, according to analysis from Moneyfacts. This year’s average performance compares to a rise of 2.8% between February 2023 and February 2024.

In contrast, Moneyfacts said the average cash ISA rate returned 3.8% between February 2024 and February 2025. This year’s returns are not too dissimilar from the previous year of 3.73% recorded between February 2023 and February 2024.

Past performance shouldn’t be relied upon, of course, but the figures illustrate the potential of investing.

As we’ve seen, holding larger sums of cash for longer periods risks losing out to inflation and missing out on the wealth generated by stock market investing.

So once you’ve built up a savings buffer of whatever you feel comfortable with, you might consider investing in the stock market, given the likelihood it will deliver superior returns.

How to invest

To get invested, your first step is to open an account with an investment provider – a tax-free ISA is a good option if you have any of your annual allowance left.

Once your account is up and running you can start choosing your investments. An important element of investing is choosing the right level of risk you take with your money. On one hand you don’t want to be lured by a run of high returns on a risky sector that might not last while on the other hand you don’t want to be so cautious that your returns are limited – and disappointing. With higher risk can come higher rewards.

You can choose individual shares or buy a fund which is less risky because the fortunes don’t depend on just a few companies. With a fund, a manager buys, holds and sells investments on your behalf. The manager will select mix of investments to spread the risk.

You could also choose a ‘passive’ fund which isn’t run by a manager – instead it mimics an index by buying all the companies in the FTSE 100 or S&P 500, for example.

If you need some help you could turn to the research aids provided by your investment platform who you hold the ISA with. They routinely have a shortlist to help whittle down from the thousands of funds available in all regions, sectors and asset classes.

If you don’t want to make the decision yourself on where to invest, consider a ready-made portfolio where a professional packages up a bunch of funds on your behalf.

Alternatively you could speak to a professional and let a financial adviser compile a personalised portfolio to suit your needs and goals.