1.1 The difference between saving and investing
Before you start to look at savings and investment products, there are some important definitions that need to be made clear.
People often use the terms ‘saving’ and ‘investing’ as well as ‘savings’ and ‘investments’ interchangeably. They may also use the term ‘saving up’ when talking about the way money is placed in a range of different products, albeit with the common objective of building up a sum of money over time.
Yet there is a clear distinction between these terms.
- Saving up. This was covered in the previous section, and is the putting of money aside to use at a future date for an array of possible purposes.
- Savings products or savings accounts. These are simple products where you save money with a bank, building society or credit union, and you are paid interest. Crucially, other than for very large savers, the value of the capital (the amount you originally save) is not at risk if it is saved with a UK-regulated financial institution.
- Investment products. Here, there is risk but also possible greater rewards than with a savings account. With an investment, the value of your cash can subsequently go up and down depending on the performance of your investment. That is not necessarily a bad thing, but you need to understand that your capital is at risk.
Now watch the video to learn more about the differences between savings and investments and the various reasons for doing both.