If you have some spare money then you may wonder whether it will be better to save or invest it Some people are not really sure of the difference and it is wise to understand this before you make your decision.
A savings account is usually offered by a bank and building society. You deposit the money with them and they will give you interest on it. If you have an instant access account you can withdraw it whenever you want to. There are savings accounts where you can give notice to withdraw money or you keep the money in the account for a fixed time period which will pay a bit more interest to you.
An investment is very different. You are actually buying something with the money, perhaps a share of a business, some art or a house. That item will fluctuate in value and therefore the value of your investment will change. You may receive a return on the investment such as dividends or rent or you may just gain from the increase in value of the item. However, with an investment there is a risk that the value may go down as well as up. In the short term there is more chance of the value going down which is why it is wise to always plan on holding an investment for a long period of time.
Whether you choose a savings account or an investment will very much depend on you, your attitude to risk and your personal circumstances. If you only have a very small amount of money, then savings will be the only option for you as investments usually require either a large lump sum or a regular monthly payment. Also when you take out an investment, you will need to be prepared to invest the money for a long period of time to give it a chance to increase the value. This means that you will be tying it up for at least five years if not decades. This means that you will need to use money that you are happy to not use for a significant period of time.
There is also a risk factor with an investment that the value may fall and you will not get back what you invested. In some cases you may get nothing back at all or even have to pay out even more money. Usually the higher the risk you take, the more money you can potentially make, but you may lose everything. If you take a lower risk you are less likely to lose money, but you may not be able to gain so much either. How much risk you are prepared to take will depend on you and your personal attitude towards it. There is almost no risk with a savings account so you may just prefer to stick to those rather than investing. However, some low risk investments may tempt you if the potential return is significantly higher than you could get on a savings account. Some people will spread the risk by having some higher and some lower risk investments so that they can have a chance of getting a high return but also have some which they know they are less likely to lose.
Before you make your decision as to whether you want to save or invest your money it is wise to investigate the different types of savings and investment options you have. There are lots of different types and they all vary in the return that you are likely to get from them as well as the amount of risk that they have. This means that you will then have all of the information that you need to decide which type is the best for you. If you do not have time to do a lot of research, then it could be wise to speak to a financial advisor and find out more information from them. They will have an in depth knowledge of all of the options available to you and will be able to explain all of your options to you. They will also be able to then find out from you how much risk you are willing to take and recommend the right place for you to put your money based on that.