Should I save or invest?
There are more ways you can save money than just putting pennies in a piggy bank.

In this article, we’ll explore the differences between two common ways to save; savings accounts and investments.
Understanding saving
Whether you’re saving for a rainy day, or you have a goal in mind, having a plan can help put you on the path to success. All savings accounts shield you from the fluctuations that come with investing.
When it comes to savings, you’ll also need to consider inflation and how that might come into play when you finally want to take your money out. Inflation is the increase in the cost of goods, and it will reduce the spending power of money you hold in savings accounts if your interest rate isn’t beating the rate of inflation.
Read our tips for beating inflation.
Types of savings accounts
When it comes to your savings you have an annual tax-free allowance or Personal Savings Allowance (PSA) that lets you earn up to £1,000 in interest without having to pay tax on it. However, this can differ depending on what rate of income tax you pay.
Try our Personal Savings Allowance calculator to understand if you might need to pay tax on savings interest you have earned.
Let’s have a look at the different types of savings accounts.
But before we get into it, your tax benefits will depend on your circumstances and may change in the future.
Easy access savings accounts
These are a type of savings account that lets you take money out whenever, without a penalty. However, withdrawal isn’t usually instant, it may have slight delays when it comes to processing. Typically, these kinds of accounts have a variable interest rate, meaning they can go up and down.
These accounts are great if you want to save at your own pace, without the worry of it being locked away for any amount of time. Most of the time they offer better interest rates than current accounts, but they are commonly lower than other savings accounts.
Instant access accounts
Instant access accounts work almost identically to easy access accounts. The main differences are that they allow instant withdrawals at any time of day. Although these usually have slightly lower variable interest rates, they make up for it in flexibility.
Notice accounts
If you know you’re going to be able to put your money away and not need direct access to it, then a notice account might be for you. They still let you take money when you need it, but you’ll have to give notice - depending on the provider this can be days, weeks, or months. As with easy access accounts they’ll give you interest either monthly or annually. The rates are usually variable so it might be worth shopping around to make sure you’re getting the best rate and account for you.
Fixed rate accounts
A fixed rate savings account allows you to put your money away for a period of time, at a set interest rate, meaning it won’t change. Because of the fixed interest rate, it can give you a chance to work out how much you could earn in interest. This is usually paid annually. But depending on the provider it might be quarterly, half-yearly or sometimes even monthly. If you want to you can also have interest paid into a separate account rather than into the account you’re using to save.
ISAs
There are a few different types of ISA, but if you’re just looking to save there are cash ISAs and lifetime ISAs.
Cash ISAs allow you to earn tax-free interest on your savings. Cash ISAs for those under 18 can be opened with a junior ISA. Junior ISAs currently have a £9,000 yearly limit for the 2025/2026 tax year.
A lifetime ISA is there to help you save for your first home or retirement. You’ll need to open it before you’re 40, but over 18 to be eligible. The government will add a 25% bonus to your savings, which works out as a maximum bonus of £1,000 a year (as you can save up to a maximum of £4,000 a year in a lifetime ISA).
You do however have an annual limit on how much you can contribute across all ISA accounts you have. The limit for the tax year 2025/2026 is £20,000 which includes the lifetime ISA annual cap of £4,000.
Limited access account
These accounts will give you access to your money whenever, but they may reduce your interest rate if you withdraw more than a few times within a set period.
Understanding investing
Investing can be more hands-on compared to saving. If you seek advice from a financial adviser then you can get all the support you might need, from picking the product that’s right for you, to getting support on where to invest your money. Financial advice will come with a fee, so it’s worth factoring that into your plans.
There are many swings and roundabouts when it comes to investing, you get flexibility and have the potential opportunity for higher returns. And on the other hand, you have the risk of leaving your money in the hands of the stock market.
Remember the value of investments can go down as well as up, and you may get back less than you've paid in.
If you’re thinking about investing and looking at a time frame, you need to plan that it's for the medium to long-term. And you should be prepared to invest for at least five years to help smooth out short-term fluctuations.
Types of investments
With investing, you can never guarantee returns. There are many products, so mixing and matching a few might work best, this is called diversification. Each investment comes with its varying risk levels, so understanding your attitude to that risk is beneficial, so you don't find yourself in shark-infested waters.
So, let's look at each investment product in a bit more depth:
Stocks and shares ISA
A stocks and shares ISA can be considered a ‘tax wrapper’ as it shields any investment growth from taxes like Income Tax and Capital Gains Tax, maximising your wealth. Any interest earned within the ISA is also tax-free, and you can invest in a range of different assets within them.
Innovative finance ISA
Rather than investing in stocks and shares or just holding your money as cash, an innovative finance ISA (IFISA) allows you to invest tax-free in peer-to-peer (P2P) loans.
P2P lending gives you the ability to give your money in the form of a loan to small business and individuals. It lets you earn interest over time as the money gets paid back to you. These kinds of ISAs look similar to savings accounts, but they do have a much greater risk.
P2P loans and IFISAs aren’t protected by the Financial Services Compensation Scheme (FSCS) so if the provider collapses, then you won’t be protected. And although you may be quoted an interest rate these aren’t guaranteed. There also is the possibility that the debtor who you’ve lent your money to is unable to repay the loan in full. Some providers who offer this, however, may have large reserve funds to protect their investors from defaulting debts.
Investment account
Opening an investment account allows you to invest in ready-made funds, shares and exchange-traded funds (ETFs). You don’t have the same benefits when it comes to tax when holding an investment account, so you may have a couple of different taxes to pay:
- Capital Gains Tax - This is the tax you pay when you sell things like stocks, bonds or funds. But each tax year you also have a CGT allowance called the ‘Annual Exempt Amount’ - for 2025/2026 it’s £3,000. You’ll only have to declare any profit above that amount to HMRC. Then you’ll pay tax at the rates below:
- 18% for basic rate taxpayers
- 24% for higher rate and additional taxpayers. - Dividend tax - If your investment accounts pay out cash dividends you may need to pay tax on these. Although each tax year you’ll get a dividend allowance – for 2025/2026 it’s £500 – and any dividends under that amount are tax-free. You also won’t have to pay tax if your total income is less than the personal income tax allowance – this is £12,570 for 2025/2026.
Bonds
There are a few different bonds on the market at the moment.
Bonds will be passively or actively managed. Passively managed investments will try to follow a specific index, like the S&P 500. Whereas actively managed ones will group together assets to try and outperform a benchmark.
Investment bonds work similarly to other investment products, in that you pay in, your money is invested, and it's left to the market to do its thing. In most cases, you’ll be able to withdraw at any time or make regular withdrawals throughout. To open an investment bond, you may have to give a lump of cash upfront to get it started.
When it comes to tax, you’ll only pay when you have triggered a ‘chargeable gain’. This is triggered by a chargeable event, like cashing in your bond. As long as you don’t take more than 5% of what you’ve put in you won’t have to pay any extra tax straight away; but if you take out more than 5% in a year or you fully cash it in you might have to pay tax on any profit you make.
Pension
If you have a pension already with your employer, it doesn't mean you can't have another to boost your retirement. It's good to check first that you won't be missing out on any additional employer contributions before opening another. Pensions are there for you to save money for future you, as you’re not able to take them out until you’re 55 (or 57 from 6th April 2028). You can invest in a range of funds depending on your provider.
When you hit retirement age and can take benefits from your pension, you’ll be given options as to how you can withdraw, and information on the way they’ll be taxed, as each retirement option is different.
Key differences between saving and investing
There are four key differences between saving and investing:
Purpose
- When saving, there’s usually a short-term goal in mind, or it’s used for emergencies, like buying a new phone or having the cash upfront for unexpected events.
- Investing is for your long-term goals, like retirement, or buying a house.
Risk
- If you’re saving there’s generally little to no risk. Your money is safe if the financial firm you’ve used is covered under the FSCS and has gone out of business they will pay compensation up to £85,000. However, inflation will reduce the spending power of your savings.
- Investing comes with higher risk, as you could lose money.
Access to your money
- Some savings accounts can give you instant access to your money, with the exception of fixed rate and notice accounts.
- When investing your money can take days to come be paid back to you after the investments sell.
Growth over time
- In a savings account your money will grow slowly and steadily.
- When you invest, your money can quickly decrease in value, but it also has the potential to grow just as rapidly.
When to save and when to invest
There’s a time and a place for saving and investing, and sometimes there’s even a place for both. Chances are you’re already doing it! Summarizing all the products, their features, and how they can benefit you is the top tip of the day.
If you’re still unsure, this is when financial advice can be pivotal to helping you make the right decisions.