Saving vs. Investing: Which Is Best?

It's an ageless question worth regularly asking: should you put your money into savings or investments?

A man looks at a computer with a calculator.
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Saving and investing are both key parts of a solid financial plan. Whether you’re putting money into the best savings account — be that the best CD rates, best high yield savings or best money market accounts — or you prefer to ride the waves of the stock market, there is no right or wrong about what to choose. 

Instead, the key is to understand your financial goals, your risk appetite and your time horizon, before making your choice, which could be to save, invest or both. 

Savings are most suited for people who want certainty and low risk, while investing is best for those who are comfortable with balancing potentially better returns (than on savings) with the risk of losing some of their capital. 

"For assets that are expected to be used in the near future (the next three years or so), having safety and liquidity is likely best. This could be a savings account, money market, U.S. Treasuries, CDs or something of that nature," Michael Powers, financial planner at Manuka Financial, told Kiplinger. "For assets that have a long-term expected time horizon, more risk through investing may be appropriate to try and earn a higher rate of return for potential growth and to keep pace with inflation."

What is a savings account and how to find the best deals 

A savings account is a pot of money you pay into that pays you interest, which typically comes your way monthly. 

If the savings rate is fixed, then you know what you will get back, though some accounts offer variable rates, which can move up or down, often in line with movement in the official Federal Reserve rate. 

To find the best CD rates, you can use our tool, in partnership with Bankrate. 

While the amount of interest you could earn varies depending on the type of account, your money is not at risk to decrease, like it is with an investment. As long as the bank you save with stays in business, your money is safe, and in the unlikely event it goes bust, most accounts protect your cash up to $250,000 via the Federal Deposit Insurance Corporation

In most cases, you can also get access to your cash when you want, though with CDs you may need to pay a penalty if you want it before the end of the term, which is usually anything from one to five years. 

While we’ve listed our tool to find the best CD rates above, they are far from the only type of savings account. High-yield accounts normally allow easy access to your money, and to find the best rates on those deals you can use our similar tool below.

Savings pros and cons 

 These are the key perks of putting your money in a savings account:

  • They are almost always risk-free, as the underlying value cannot go down as long as your bank stays solvent. Even if it went bust you are usually protected up to $250,000 via the Federal Deposit Insurance Corporation
  • They are fairly simple as you are told the interest you will get upfront and whether that rate is variable or not
  • In many cases, you can take the money out when you want in case you need it for a sudden expense or if you’ve been saving up for something

 But these are some of the pitfalls of savings accounts:

  • Returns are often lower than the best-performing investments
  • There are sometimes penalties to access your cash before the end of whatever term you signed up for if your account has a ‘lock-in’ period.
  • Some accounts have a minimum balance which, if the account falls below, causes the account holder to incur charges

What is investing? 

When you invest, you are often buying a share in a company (either in one firm or if you invest in a fund you’re buying shares in multiple firms) or a commodity such as gold, oil or even art. 

You hope that the value of that investment will go up so you make a profit when you sell the investment. You may even earn an additional income along the way via dividends, which are payments firms make to shareholders as a share of profits. 

However, there is a risk the value of your investments can go down, so they come with risk. In the worst cases, you could even lose all the money you invested. The flip side, though, is that the best performing investments tend to outperform savings over the long run. 

And speaking of the future, it is usually advisable to invest over the long term so you are able to ride out any bumps in the market. It can be a dangerous game to expect quick wins from your investments, though that doesn’t mean you won’t do well in the short term. 

You can invest via an account you set up yourself or via a 401(k) set up by your employer, which it may also contribute towards, assuming you meet eligibility requirements. 

Investing pros and cons

 These are the key perks of putting your money in an investment:

  • If your investment performs well, it may well outperform the best savings accounts and inflation, though there are no guarantees 
  • You may earn an income from your investment via dividends, even before selling it to realize any gains (hopefully)
  • Many investments give you access to your money when you want (though not all do), but the risk of taking money out when your investment has dropped in value is that you’re not giving yourself the chance for it to go up again 
  • With a 401(k), your employer may even pay into your investment, which is akin to a pay raise

 Here are the main problems with investing:

  • Investing is inherently risky and there is a chance you could lose some or all of your money
  • There are often fees to make trades or for a fund manager to manage your money 
  • You are normally advised to invest for the long run, so they are not best for those who may need to access their money in the coming months
  • Investing is more complex than savings and, as well as doing your own research, many people turn to a financial adviser to help them navigate the maze that is investing

If you need advice, you can use our tool below, powered by Bankrate, to help you find an adviser. 

Saving vs. investing: Which is best for you?

There is no right or wrong answer as to whether you should save or invest, and it is very much down to your attitude to risk, what access you need to your money and whether you understand the product in question. 

Certainly, anyone who cannot sleep at night for fear the value of their cash may go down or who may need their money at the drop of a hat would be best going down the savings route, rather than investing. 

Yet if you are prepared to take the risk, and are prepared to invest for the long term, then many investors have done much better in the stock market or buying commodities than they would have done by saving. 

Ultimately, only you can make the decision for yourself. 

Guy Anker
MD, Wealth

Guy has extensive experience in personal finance journalism having joined Future (Kiplinger's parent company) after 13 years at, most recently as deputy editor, and working closely alongside Martin Lewis. He has also worked at the Daily Mail as a personal finance reporter and his work has appeared in The Sun, Guardian, Observer, Mirror and other national newspapers. As a money and consumer expert, Guy is a regular guest on TV and radio – appearing on BBC News, BBC Radio 4, Sky News, ITV News and more.