Saving Vs Investing | Should You Save Or Invest? – HSBC UK (2024)

FAQs

Saving Vs Investing | Should You Save Or Invest? – HSBC UK? ›

Is saving or investing right for you? If you have more than one goal you'd like to put your money towards, you might consider a combination of saving (for short-term goals) and investing (for long-term goals). Work out how much you can afford to put away each month. Creating a budget can help you do this.

The difference between saving and investing

Opening a savings account is a way of putting your money to one side until you need it. Investing is about using your money with the aim of benefiting from the future potential of something you buy.

If your goal requires quick access to cash, you'll likely opt to hold money in a savings account or similarly liquid space. On the other hand, if you're hoping for better returns on your money than can be achieved with savings account interest rates and over a long time, then investing may be the answer.

Investment expert's opinion

This service is a decent start for less confident investors looking for the security of a big brand bank, and some handholding along the way. Onboarding feels quite long and it's hard to keep up the enthusiasm to complete. Charges are fair (less than 1% in Year One) which includes advice.

The biggest difference between saving and investing is the level of risk taken. Saving typically results in you earning a lower return but with virtually no risk. In contrast, investing allows you the opportunity to earn a higher return, but you take on the risk of loss in order to do so.

Saving £1,000 a month could have a substantial impact on your long-term financial wellbeing. At an average interest rate of 2.35%, saving £1,000 a month for 10 years would result in a total savings of around £134,215. It's crucial to strike a balance between saving and meeting your current financial needs.

While you can usually cash in your investments at any time, it's therefore often best to leave your investment in place for at least five years. As a general rule then, you should only invest money you won't need in the immediate future. Anything you need short-term access to is probably best kept in savings.

Imagine you wish to amass $3000 monthly from your investments, amounting to $36,000 annually. If you park your funds in a savings account offering a 2% annual interest rate, you'd need to inject roughly $1.8 million into the account.

Saving has many benefits such as providing a financial safety net for unexpected events, liquidity for purchases and other short-term goals, and being safe from loss. However, there are also some drawbacks to consider, such as missing out on potential higher returns from riskier investments.

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

What are the disadvantages of HSBC bank? ›

Protecting your money

Most deposits are covered by the scheme. This limit is applied to the total of any deposits you have with HSBC and first direct. Any deposits you hold above the FSCS compensation limit are unlikely to be covered, unless under specific circ*mstances, as determined by the FSCS.

It's a good rule of thumb to prioritize saving over investing if you don't have an emergency fund or if you'll need the cash within the next few years. If there are funds you won't need for at least five years, that money may be a good candidate for investing.

Savings are ideal for short-term or unexpected expenses such as holidays or the boiler breaking down. But if you're looking to build your wealth for the future, it's worth considering investing because stock markets tend to perform better than cash over the longer-term.

Investing: Putting Your Money to Work for You

Investing, on the other hand, involves putting your money into financial instruments like stocks, bonds, exchange-traded funds (ETFs), and mutual funds. Investing is riskier than saving, but can also earn higher returns over the long term.

The 50 30 20 rule means that you should save 20% of your salary after tax. In a cost of living crisis, it can be tempting to add less money to your savings, so you have more money for needs and wants. But it's a good idea to keep plugging away at your goals, as savings can come into their own when times are hard.

Saving provides a safety net and a way to achieve short-term goals, while investing has the potential for higher long-term returns and can help achieve long-term financial goals. However, investing also comes with the risk of losing money.

Savings accounts

The higher the rate and the more money in your account, the more interest you earn. Therefore if you want to grow your money, savings accounts are an obvious choice. Savings accounts can also offer: Tax-free interest if you use an ISA or stay within your Personal Savings allowance.

Investing is the ownership of financial assets and is usually a long-term affair with limited risk. Trading is speculating on financial markets without the ownership of those assets, often with a higher risk than investing and done with a more short-term frame of mind.