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

Setting money aside is a useful way to fund major milestones but the first question for many is whether it is better to put into a savings account or invest it.

Cash may be the best option if you are cautious and have short-term goals, but, once you have an emergency savings pot, investing tends to be better for a longer-term outlook especially when it comes to putting money away for your retirement.

While the fixed returns of cash may feel like a safer bet compared with the risks of losing money by investing in the stock market, there are other factors to consider such as inflation, which erodes the true spending power of your cash.

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The FTSE All Share Index – an index tracking 600 companies listed in London – beat inflation in every twenty-year rolling period between 15 January 1988 and 15 August 2025, while cash failed to do so in a quarter of cases, according to research by Fidelity International.

Over ten-year rolling periods, UK stocks beat inflation 95% of the time, compared to 58% for cash. Over five-year periods, investing beat inflation 80% of the time, compared to just 55% for cash.

This isn’t to say investing is necessarily better than holding cash, but that the key is to have some exposure to both and to balance your holdings to match your goals.

“For investors who want to protect their spending power, a globally diversified portfolio – with exposure to equities and other long-term assets – remains the most effective way to stay ahead of inflation,” said Marianna Hunt, personal finance specialist at Fidelity.

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, applied monthly or yearly.

The rate 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, the Financial Services Compensation Scheme (FSCS) covers up to £120,000 per person, per institution, so your money should be protected if it’s held with a UK-authorised bank, building society or credit union. Some banks or building societies share a banking licence and this could affect how much of your money is covered – you can check how much of your money would be protected using the online tool.

As a rule of thumb, experts suggest saving 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 (also known as ‘equities’) in companies, invest in bonds or even buy property.

“Equities have provided a far more reliable route to preserving and growing the real value of your money [compared to cash]”, says Hunt. “Holding too much excess cash risks eroding the value of hard-earned savings, whereas a balanced approach with long-term investments offers a much stronger defence against rising prices.”

When it comes to shares you can buy some in individual companies that you choose yourself, or you could invest in a fund which is made up of multiple different stocks, providing diversification.

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.

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.

You can also choose to invest in bonds, which are considered to be lower down the risk scale. These 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 Financial Services Compensation Scheme 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, however, make a claim for an investment simply not performing well.

Saving vs investing – how do they compare?

Saving and investing aren’t mutually exclusive, and both have a role to play in a balanced approach to your finances.

But it’s important to understand the differences and advantages of each. This table explains the basics:

Because of its reliability, cash is the ideal place to store money you might need in a hurry – perhaps in case of an emergency such as an unexpected expense or for an upcoming house deposit.

But once this emergency fund is in place, any excess that you won’t need in the next two to five years may generate better returns if invested in stocks.

“While cash is important for short-term needs and as a safety buffer, our analysis shows that, over the long term, it has often failed to keep pace with inflation,” says Hunt.

Saving versus investing – where can I make more money?

History shows that returns from stocks and shares outweigh cash over the long term, though they come with more ups and downs along the way.

Research from asset manager Vanguard shows that even the unluckiest investors can make more money in the stock market than by saving over the long term.

The firm modelled how investing into the stock market just before several major stock market selloffs would have impacted returns over the last 30 years.

The analysis assumed that the following amounts were invested into the FTSE All World Index (which includes a blend of stocks from all over the world) at these times, and that no shares were ever sold off:

• Sep 1997: £2,500 added before the Asian financial crisis
• Jul 1998: £2,500 added ahead of Russia’s default, Long-Term Capital Management collapse
• Jan 2000: £10,000 added at the dot‑com top; the tech bust, 9/11 and war in Afghanistan
• Oct 2007: £5,000 added on the eve of the global financial crisis
• Dec 2019: £10,000 added just before the Covid‑19 crash
• Dec 2021: £5,000 added ahead of the Ukraine war, inflation surge and rapid rate hikes
• Dec 2024: £10,000 added before “Liberation Day” and tariff volatility

Despite the value of their contributions falling in the short term following each of these investments, by February 2026, this hypothetical unlucky investor would have a portfolio worth £197,963, having made contributions worth £45,000. That’s a total return of 340% despite consistently investing at the worst moments.

Saving the same amount as cash over the same period would have resulted in a pot worth £63,554 (a 41% increase), based on the historic UK bank rate – so over the long term, even the worst-timed investments have outperformed cash.

“Even with consistently poor timing, staying invested through market downturns has historically led to better outcomes,” said James Norton, head of retirement & investments at Vanguard. “The key takeaway for investors is that remaining disciplined and holding a broadly diversified portfolio, for the long-term, at a low cost and riding out any volatility, can deliver strong outcomes even in the most challenging conditions.”

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

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 possibility it will deliver superior returns.

How to invest

If you want to start investing, your first step is to open an account with an investment provider – a tax-free stocks and shares ISA is a good option if you have any of your annual ISA 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. 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 can be 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 a 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.