Beginner's guide to Savings & investments

What's the difference between saving and investing?

We all know itʼs a good idea to put some money away for a rainy day, but do we know the pros and cons to saving and investing? If youʼre saving for something in the short term (generally seen as less than five years), then a traditional savings account could be the way to go. Your money is largely secure with easy access, but over the long term inflation could eat away at the value of your savings. 

An investment in its simplest form is when you buy something with the hope and expectation of it increasing in value. An example of a good investment would have been the purchase of a Central London house in 1980 for £100,000. That house would now be worth over £1.5 million, and a percentage increase of over 1400% which is over 15 times more than the original purchase price.

Bank account

Ideal for the day-to-day running of your life and youʼll get all the money you put in back plus any interest accrued. But if you want to make money, then a bank account may disappoint. In fact, returns may be so low that you risk inflation eating away at your money.

Cash ISA

You wonʼt pay any income tax on any interest with a cash ISA, and youʼll get back the money you invest plus any interest. However, with interest rates currently so low, your money could be eaten away by inflation.

Investment account

If you want to invest for at least 5 years and have already maxed out your ISA allowance. You wonʼt receive the tax benefits of an ISA but you still have a chance of growing your money; you could also lose some or all of your money.

National Savings Income or Premium Bonds

You can be sure your money is safe as theyʼre backed by the government. Youʼre unlikely to get huge returns though, so the buying power of your money could be eaten away by inflation. You also won't receive any interest with Premium Bonds, so unless youʼre lucky enough to win one of the bigger prizes, your return is unlikely to beat inflation.

Savings account

Some offer higher interest rates than instant access accounts but you may have to tie your money up for a while to achieve this rate. Youʼll get back all the money youʼve paid into the account plus any interest. With low interest, you risk inflation eating away at your money.

Stocks & shares ISA

Worth thinking about if you can invest for at least 5 years. You wonʼt pay income tax on any growth and will have the chance of growing your money. You could however lose some or all of it.

A world of investing

Thereʼs a huge array of investments out there. From unit trusts, venture capital trusts to collectibles such as art, fine wine and antiques; each have their own risks and levels of return.

Two men in a discussion
Two men in a discussion

What can I invest in?

You can invest directly in assets or you can invest through a fund. A fund is a way of pooling money together with other investors. It is professionally managed by a fund manager who invests in assets in line with the fundʼs aims. 

There are 4 main types of assets a fund will invest in: Cash, bonds & gilts, property and shares. Each type of asset has its own level of risk.

A person parachuting
A person parachuting

Risk Vs reward

As a general rule of thumb, the more risk you take, the better chance you have of getting higher returns in the long run. There is, however, a greater chance of losing more (or all) of your money. 

So as youʼve probably already guessed, investing depends a lot on how adventurous you want to be with your money. 

Before you decide how much risk you want to take, make sure youʼre familiar and comfortable with the aims of the fund and consider how much money you can afford to lose.


Ready to start investing?

There are a few things you might want to consider before jumping in. Have a look at our Stocks & shares ISA page to find out more.

Stocks & shares ISA


Read our magazine

Investing can feel a bit overwhelming at times. Our magazine article will help you to understand the basics.

The nuts and bolts of investing


Cash ISA

Build up your cash savings and earn tax-free interest on your money

Stocks & shares ISA

Provides a tax efficient way for you to invest in the stock market.

Investment account

If you've used up your yearly ISA allowance and want to invest more