When to invest or save

We all know it’s important to put money aside for the future. But when it comes to building long-term wealth, there’s a big difference between saving and investing. Both have their place, but understanding how they work (and when to use each) can make a real difference to your financial journey.

What’s the difference between saving and investing?

Saving means setting money aside in cash, typically in a bank account. The main benefit of savings is safety and accessibility: your money is secure, and you can usually access it almost instantly.

The trade-off is that savings accounts tend to offer very low interest, often below the rate of inflation. In other words, while your money stays safe, its purchasing power may shrink over time.

Investing, on the other hand, is about putting your money to work in assets such as shares, bonds, or investment trusts. The goal is long-term growth – aiming to earn returns that outpace inflation and interest rates.

On the flip side, investments aren’t as easily accessible as cash; to use the money, you generally need to sell your holdings. However, some types of investments, like investment trusts, can be sold on the London Stock Exchange within hours, offering more liquidity than many other pooled funds.

In short: saving protects your money, while investing grows it. The best financial plans often combine both.

The long-term benefits of investing

The biggest advantage of investing is that it gives your money the chance to grow faster than the rising cost of living. Over time, even modest returns can accumulate significantly thanks to compounding – the process where your gains earn further gains.

For example, reinvesting dividends from equities allows your investment to grow like a snowball rolling downhill: small at first, but gathering size and momentum with each turn.

Investments can also provide:

• Inflation-beating growth. While savings interest may lag behind rising prices, equities and other assets have historically delivered stronger returns over the long term.
• Passive income. Many investments generate income in the form of dividends or interest, which you can either withdraw as cash or reinvest to accelerate growth.
• Wealth creation. By staying invested through market cycles, you give your money the best chance to grow steadily over time.

The risks of investing

Of course, investing isn’t without risk. Markets go up and down, and returns are never guaranteed. If you know you’ll need your money in the short term, like to pay for an upcoming expense, keeping it in savings may be the safer option.

The key is to match your financial strategy to your time horizon and goals. Short-term needs are best covered with cash savings, while long-term goals, such as retirement or building wealth for the future, are where investing comes into its own.

Striking the right balance

For most people, the decision isn’t saving OR investing. It’s about how much to allocate to each. A savings account can provide a financial safety net for emergencies, while investments can power long-term growth.

By combining both, you protect your short-term security while giving your wealth the opportunity to grow over time.

The bottom line

Saving helps keep your money safe and accessible. Investing helps it grow and keep pace with inflation. Both have a role, but if you want your money to work harder for you over the long run, investing offers the greatest potential rewards.

Issued by Towers Watson Investment Management Limited (TWIM), registered office Watson House, London Road, Reigate, Surrey RH2 9PQ. TWIM is authorised and regulated by the Financial Conduct Authority, firm reference number 446740. TWIM is the Alternative Investment Fund Manager (AIFM) for Alliance Witan PLC. TWIM is part of Willis Towers Watson.
Alliance Witan PLC is listed on the London Stock Exchange and is registered in Scotland No SC1731. Registered office, River Court, 5 West Victoria Dock Road, Dundee DD1 3JT. Alliance Witan PLC gives no financial or investment advice. © Copyright Alliance Witan PLC. Tel: 01382 938320.
 
This information is for informational purposes only and should not be considered investment advice. The views expressed are the opinion of TWIM and are not intended as a forecast, a guarantee of future results, investment recommendations or an offer to buy or sell any securities. The views expressed were current as of end July 2025 and are subject to change. Past performance is not indicative of future results. A company’s fundamentals or earnings growth is no guarantee that its share price will increase. You should not assume that any investment is or will be profitable. Information contained herein has been obtained from sources believed to be reliable but not guaranteed.