The difference between saving and investing
What is the difference between saving and investing?
Saving and investing are both ways to put money aside for the future, but they work in different ways.
Saving is generally used for short-term goals and money you may need access to quickly, such as an emergency fund or a planned purchase.
Investing is usually a longer-term approach that gives your money the potential to earn higher returns, but it also involves taking some risk, including the possibility of losing money. Understanding the differences can help you choose the approach that best matches your goals, timeframe and attitude to risk.
Saving and Investing compared
The table below compares the main differences between saving and investing.
Category | Saving | Investing |
|---|---|---|
Main purpose | Building an emergency fund for security and short-term financial goals | Grow your money for longer term future goals |
Best for | Short to medium-term goals | Medium to long-term goals |
Access to your money | Usually easy to access | If you need your money back before you had planned to, you may not be able to access it immediately and could get back less than you invested |
Risk |
|
|
Potential return | Typically, lower and more predictable | Hostorically, higher over the long term but not guaranteed |
Inflation impact | May not keep pace with inflation. Prices may rise faster than your savings grow, reducing what your money can buy over time. Learn more about the impact of inflation. | May outpace inflation |
Typical products | Savings accounts, credit union accounts and State Savings products | Investment funds, Exchange-Traded Funds (ETFs), shares, bonds, pensions and other products |
Some investments, such as funds, ETFs, pensions and unit-linked investments, give you access to a diversified mix of investments, including shares and bonds. Find more information on types of investments.
Which option is right for you?
Before deciding to invest, ensure you have the following addressed:
- Can you meet your regular bills and expenses with ease each month?
- Do you have high interest debt under control (e.g. credit cards)?
- Do you have ‘emergency fund’ savings to cover unexpected loss of income or unexpected expenses?
- Can you put aside your money for the longer term without necessity of needing it for your day to day living expenses or short-term unexpected expenses?
Then consider the following:
What are your financial goals?
A clear financial goal can help you decide whether saving or investing is right for you. Long-term goals, such as paying for a child's education or funding your retirement, may be better suited to investing because your money has more time to grow. Shorter-term goals, such as saving for a house deposit, may be better suited to savings products, where protecting your money and being able to access it when needed are often important considerations.
When will you need the money?
Savings are generally more suitable for money you may need in the short to medium term, as they typically offer greater certainty and easier access. Investing is generally intended for the long term, and investments may need time to recover from market ups and downs. Consider when you are likely to need access to your money before deciding which option is right for you.
Are the potential returns worth the risks?
Saving and investing are different strategies, but both can play an important role in helping you achieve your financial goals.
Savings typically offer greater security, easier access to your money and more predictable returns. However, these returns may not always keep pace with inflation.
Investments have the potential to deliver higher returns over the long term. However, their value can rise and fall over time, and there is a risk of losing money, particularly over shorter periods.
Consider which approach, or combination of approaches, is most likely to help you achieve your financial goals.
What will it really cost you?
When comparing savings and investments, consider the impact of fees, charges and taxes on your overall return. Before choosing a product, make sure you understand any taxes and charges that apply and whether they are one-off or ongoing costs. Find out more about taxes and charges.
Do you understand the product you're considering?
Whether you're opening a savings account or making an investment, it's important to understand how the product works, any fees or restrictions that apply, and the risks involved. Never put your money into a product that you do not fully understand.
The CCPC Investment Readiness Tool
The CCPC Investment Readiness Tool is a quick online self-assessment of 8 multiple-choice questions, informed by OECD financial literacy guidance and European investor protection principles.
Your result will indicate whether you have the financial capacity to invest now and suggest practical next steps.
The CCPC does not store or use the information you enter. The tool is independent, impartial and intended only for your own financial information and self-knowledge.
