Everyone knows that it is smart to have some money put aside in case the worst happens, but where should it go? And what is the difference between savings and investments?
Traditionally, savings accounts are held with banks and there are many different types of on offer, including those that require notice to access funds and those that allow withdrawals at any time.
A good way to find the right savings account is to use an comparison website where you can compare a full range of accounts instantly to find the best one to suit your requirements.
Savings accounts are very easy to set up and everyone understands how they operate. For most people, a savings account is their automatic choice when deciding to try and save some money for the future.
However, whilst they are undoubtedly a popular choice, savings accounts often do not provide sufficient returns to safeguard the value of the money.
As the rate of inflation often exceeds the amount of net interest being paid, savings accounts have sometimes been referred to as a ‘slow robbery’, as the funds so diligently saved actually drop in value as the years pass.
This is where investments can provide a better option, as the gains made can be very substantial and far outstrip any increases in cost of living.
However, like anything, the potential for greater returns comes at a price; unlike savings accounts where the initial sum deposited is safe, it is possible to lose the original outlay with an investment and end poorer than when you started.
It is possible to temper the risk of losing money by attitude to risk. Picking a lower risk investment will not eradicate the dangers completely, but it will greatly reduce the possibility. But a lower risk will also bring lower potential gains – although usually still far in excess of a savings account.
The other drawback to investments is that they are usually better being considered as a long term project as returns are very rarely profitable in the early years – with the exception of ventures such as stocks and shares dealing.
Anyone considering investing money needs to have a strong stomach, as most types of investment are linked to the markets and economy in some way and usually follow a turbulent course.
This can mean watching your money drop in value during depressed economic times, but holding your nerve and riding the wave of the markets usually brings good returns as the situation improves.
Investing requires an online brokerage account that offers a wide variety of investment products. One can trade stocks, options, funds, ETFs or invest in managed funds, IPOs or structured products online.
Whether to pick savings or investments depends on your attitude to risk and whether you can afford to lose the money, should the worst happen.
A widely held belief is that you should not invest money you could not afford to lose – if this is the case, a savings account may be the better option.
In reality, for anyone that has money to spare, a combination of savings and investments works the best. By keeping a small amount of money readily available, with some in a high interest savings account and the rest invested in a suitable project or fund, you may find a good balance between risk and potential returns.