Saving or investing... what's the difference, and which is best for me?

Most people are familiar with the idea of saving... even if they haven't managed to do as much of it as they may have wanted to! We all know what it's like to save up for a holiday or a major purchase - and most of us try to have some cash on standby in case anything unexpected happens.

Investing is a different matter. If you are considering investment – perhaps as an alternative to a deposit account for some of your money – it's useful to look at the differences between saving and investing.

Saving... how does it work?

Investing... how does it work?

Before you decide what's right for you...

If you want the certainty of knowing what you will get back, investing probably isn't for you. But if you want the chance to earn more than you'd get from a bank or building society, and are prepared to take some risks, it may be worth considering. You might, of course, choose to hold a mixture of savings and investments to help you achieve your financial objectives – it's not 'either or'!

Start by asking yourself a few questions...

Do you have any debts?

You might be paying more interest on your debt than you could earn by investing money. Consider paying any debts off first.

What might happen if...

It’s a good idea to keep some money in an easy access account in case of 'rainy days' such as redundancy or a temporary loss of income. And don't forget there will be 'drizzly days' too... things like car breakdowns and boiler failures can happen to anyone!

When will you need your money?

If you've got a specific goal in mind and are comfortable knowing that you won't be able to access your money for a number of years – then investing could be for you. But if access to your money is important a savings account may be more appropriate.

How much income will you need in retirement?

Providing money for retirement may well be your first priority in considering saving or investing. There's a lot to think about here – such as managing any pension plans you may have, and how you could eventually take money from them to provide an income.

  • Our My retirement planner is a good place to start – it can help you get an idea what kind of income you might have when you retire.

Have you thought about inflation?

Bear in mind that inflation will reduce what you can buy with your money, For example, a litre of petrol in 2009 was 87p. By 2014 this had risen to 130.2p – nearly half as much again. The growth your savings or investment might achieve over time may look quite impressive, but possibly less so when you consider how prices could rise over the same period of time.

Inflation

Let’s assume that inflation is 1.5% a year. If it stayed at that rate for ten years, prices would increase by 16.05%. So you’d need £116.05 to buy goods that had cost just £100 ten years earlier.

£100

Now

£116.05

in 10 years time

Saving

Now let's say that you have £100 in a savings account which earns 0.77% interest a year. In ten years time you'd have a total of £107.95 (before tax). Although your money would be relatively secure, your savings wouldn't have grown in line with inflation.

£100

Now

£107.95

in 10 years time

Investing

If you invested your money and it returned 6.9% a year, this would mean that in 10 years time you'd have £194.81. Your investment would have grown more than inflation – but there was no guarantee of this. Investment returns can go down as well as up and you could have got back less than you invested.

£100

Now

£194.81

in 10 years time

How do you feel about risk?

This is one of the most important considerations when you’re deciding whether investing is right for you. Some people have more of an appetite for life's risks than others. You might already know exactly where you stand on this subject – but many people haven't fully explored their attitude to risk.

We can help...

  • Our six steps to understanding risk click-through guide helps you to think about the issues.
  • We can also help you develop a risk profile which you can use to help you find investment options suited to your attitude towards risk.

Saving for your future

Some types of investments we offer

If you are planning for your future you’re probably looking for investment products that could grow your money

Stocks and shares ISA

A tax-efficient investment plan which you can buy through a bank, an online provider or through a financial adviser. Because of the tax advantages it offers, the government limits how much you can save in an ISA. You'll find more information on the ISA products we offer.

Collective investment

Your money is pooled with other investors to aim for growth, income, or both. You'll find more information on the collective investment products we offer.

Pension

This helps you invest money for your retirement. You normally won’t be able to access the money until you are 55. You can start a pension plan through your employer, a financial adviser, or directly from a provider. You'll find more information on the pension products we offer.

Approaching retirement

If you are approaching retirement you're probably looking for investment options that could provide an income

Annuities

An annuity is a financial product designed to turn your pension fund into an income. There are different types and options open to you. Find out about this in our annuities section.

Fixed Term Retirement Plans

We offer a retirement income plan that lets you start using your pension fund for a fixed term of your choosing between 3 and 25 years. This may be suitable if you have a pension fund of at least £10,000, after any tax free cash is taken and any adviser charge is paid.

Find out more about Fixed Term Retirement Plans

Income drawdown

Also known as 'pension fund withdrawals', this allows you to take an income from the money you've built up in your pension fund whilst leaving the remainder invested for potential future growth.

Income drawdown from Aviva may be suitable for you if you're aged 55 or over and you have a minimum of £30,000 in your pension fund(s).

Find out more about Income drawdown

Equity Release

You could be living in your most valuable asset. There are a number of things you could do to get money from your home, including downsizing or renting out space. Of course, not everybody would want to do this – but if you own your home, there may be an alternative: equity release. This option could give you the opportunity to release some of the value locked in your home without having to move.

Find out more about Equity Release

Already retired

If you are a retired or part retired you are probably looking for income options and lower risk solutions

Fixed Term Retirement Plans

We offer a retirement income plan that lets you start using your pension fund for a fixed term of your choosing between 3 and 25 years. This may be suitable if you have a pension fund of at least £10,000, after any tax free cash is taken and any adviser charge is paid.

Find out more about Fixed Term Retirement Plans

Income drawdown

Also known as 'pension fund withdrawals', this allows you to take an income from the money you've built up in your pension fund whilst leaving the remainder invested for potential future growth.

Income drawdown from Aviva may be suitable for you if you're aged 55 or over and you have a minimum of £30,000 in your pension fund(s).

Find out more about Income drawdown

Equity Release

You could be living in your most valuable asset. There are a number of things you could do to get money from your home, including downsizing or renting out space. Of course, not everybody would want to do this – but if you own your home, there may be an alternative: equity release. This option could give you the opportunity to release some of the value locked in your home without having to move.

Find out more about Equity Release

Lower risk investments

There are also lower risk investments that you may want to consider.

Find out more about lower risk investments

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