Session 5: Saving and investing

Introduction

Welcome to this session on savings and investments, produced by The Open University in collaboration with MoneySavingExpert.com.

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Transcript: Video 1 Introduction to Session 5

MARTIN LEWIS

Saving. Everyone should be encouraged to save to put money away for your future, except when you shouldn’t. I have a bit of a problem with the push for everyone to be a saver. Sometimes it isn’t right for you. In fact, I have a problem that people going to banks or building societies, they want to open savings accounts, they’re asked loads of questions, and they open their savings accounts, but they’re never asked the crucial question first: what debts do you have?

If you’ve got expensive debts, in most cases, it’s best to pay them off before saving. Because the truth is, debt and saving are two sides of the same coin. Now for example, let’s say you’ve got credit card debts typically at 18% interest. In other words, it costs you 180 pounds per 1,000 pounds of debt to have it. You’ve also got 1,000 pounds in a savings account earning you 2% or 20 pounds per 1,000 pounds. If you take the savings and pay off the debt, you’ll be 160 pounds a year better off.

And if you’re saying, what about my cash emergency fund? Well, I didn’t say get rid of the credit card. If the worst happens, you can spend on the credit card, the debt would go back up, you’d be in exactly the same situation, but in the meantime you’d have saved on the interest. So in general, if you’ve got expensive debts, pay them off before saving.

Now I’m talking here saving which in the common sense, the big picture word means putting your money away for the future, but there are actually two types of saving for your future. There’s saving, which is where you’re putting money away in a bank or building society in a deposit account that’s protected where you’re going to get a guaranteed amount of interest once the money saved away and it’s going to grow, and then there’s investing. Investing is when you put your money into something in the hope that it will grow very quickly, but there’s a risk you may get back less than you put in or even nothing at all.

Now some people wrongly think that I am very pro-saving and anti-investing, because they never hear me talk about investing. There’s actually a reason for that. My expertise is in saving and I don’t cover investing. It isn’t a bias. Personally I do both with money that I have. But when it comes to investing, you have to think about the risk that you are willing to take. There are different levels of investment risk out there. If you put your money into one single company’s shares, that’s pretty high risk. If you put your money into 1,000 different companies shares via a fund, you’re spreading the risk, mitigating the risk. It doesn’t mean you won’t lose money and it doesn’t mean you’ll make a lot. It means both are probable outcomes.

Understanding risk is crucial. Risk isn’t a negative word. It means there’s a huge swathe of possibilities of outcomes that you could have, and you need to think about that before you do anything. And when it comes to investing, make sure you ask the right questions. I’m always amazed how many people send me on social media things like, what is Bitcoin and should I be investing in it? It’s a really easy answer for me. If you don’t know what Bitcoin is, you shouldn’t be investing in it.

End transcript: Video 1 Introduction to Session 5

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Video 1 Introduction to Session 5

The session covers the spectrum of savings accounts and investment products. It starts by looking at the importance of savings accounts and the many different products available.

You’ll later explore the different types of investment products such as shares (or ‘equities’), bonds, property and commodities (such as gold and silver). You’ll also look at a relatively new type of investment: ‘peer-to-peer’ lending.

By the end of this session you should be able to:

• understand the key features of different savings products
• identify the savings products that align with your reasons for saving up
• understand the different types of investments, such as funds, shares and bonds
• recognise the minor risks associated with savings accounts and the potentially substantial risks (but also possible rewards) associated with investing
• know where to go for help when considering investments.

Please note that this session covers one of the riskiest aspects of personal finance: investing. As such, the information here should be taken as educational guidance only. Before making investment decisions – certainly major ones – you should seek advice given the risk of potential financial loss you could be exposing yourself to.