Saving Vs Investing

Savings, Inflation & Interest Rates – Explained

What Are Savings?

Savings is the money you don’t spend and instead put aside—usually in a bank account—for future use. People save for things like holidays, emergencies, or big purchases like a car or a phone. Before we look at Saving Vs Investing, first we need to look at Inflation and Interest rates.

What Is Inflation?

Inflation means that prices go up over time. So, something that costs £1 today might cost £1.10 next year. This means your money loses value if it just sits there and doesn’t grow.

Example:

If you saved £100 today and left it in a jar, next year you could still have £100…but if prices go up, that £100 might not buy as much as it used to.

What Are Interest Rates?

Interest is the extra money you earn from the bank as a reward for saving. It’s like a “thank you” for letting them hold and use your money.

Example:

If the interest rate is 2%, and you save £100, you’ll earn £2 in a year. So, your total becomes £102.

How They All Connect

If inflation is higher than your interest rate, your savings lose value in real life.
If your interest rate is higher than inflation, your money grows in value.

Why It Matters

Saving money isn’t always enough, because inflation might eat away at its value. That’s why many people consider investing, especially for long-term goals, to try and beat inflation.

Saving vs. Investing Comparison

Saving is putting your money in a safe place like a bank account so you can use it soon. It’s low risk, grows slowly, and is best for short-term goals—like a holiday, a phone, or an emergency fund.

Investing is using your money to try to grow it over time by buying things like stocks or property. It’s higher risk (you could lose money), but it’s better for long-term goals—like buying a house or retiring.