You’ve been hearing about saving ever since pocket money was invented. But have you got your head around investing? Saving and investing are two important financial strategies that help you manage your money and reach your financial goals. While both have their pros and cons, understanding the differences between the two and asking some simple questions can help you make confident decisions about your money.

Let's rewind: what's the scoop on saving? 

Saving refers to setting aside a portion of your income for a specific purpose, such as an emergency fund, a deposit for a house, or a big purchase. Savings accounts and term deposits are the most common form of savings, offering a low-risk, low-reward option for individuals looking to protect their money.

Become a Super Saver!

So, you’ve got your head around saving, and your piggy bank is full... what’s next? Ideally, you’d open a savings account! Savings accounts (and term deposits) are government guaranteed, meaning your money is protected up to $250,000 by the Australian Government’s Financial Claims Scheme. Interest rates will vary depending on the account so do some homework to find a savings account that suits you. Some accounts will reward savers with bonus interest if you regularly add money to the account and keep your withdrawals to a minimum.

Tickle your savings: consider a term deposit account

If you’ve got nice chunk of money sitting in your everyday bank account already, you may want something with a bit more oomph than a savings account. You might consider a term deposit (also known as a term investment) where your money is locked away for a period time, which could be anywhere from 1 month, up to 5 years. The difference is you can’t access your money during that time, but the term deposit interest rate will often be much higher than a savings account. 

Now to get serious: what is investing?

Investing, on the other hand, involves putting your money into assets with the goal of growing your wealth over time. There are a wide variety of investment options available, including shares, exchange traded funds (ETFs), managed funds, and real estate. Investing can be riskier than saving, as the value of your investments can fluctuate, but the potential rewards are often much higher. Investing also gives you the opportunity to diversify your portfolio and spread your risk among different types of investments, which can help protect your money in the long run. Again, do some homework to see what options suit you best. Technology has made investing easier, you can research and buy shares and ETFs with an online trading account.

It's time to dream big: set goals and timeframes

One key difference between saving and investing is the timeframe. While saving is a life-long habit, saving is typically focused on short to medium term goals, like saving for a home loan deposit or buying a new car. 

Investing, on the other hand, is focused on the long term, with the goal of growing your wealth over time and riding out fluctuations in the value of your investments. Whether you go down the savings or investing path will depend on where you’re at in life and what your financial goals are. 

How do you roll with risk?

Both saving and investing come with a level of risk. The difference is, savings accounts are typically low-risk, low-reward options, while investing can be much riskier. The level of risk you’re willing to take on will depend on your age, your personal financial situation and goals, as well as your own risk tolerance. Different types of investments will carry different risks and there’s no such thing as a risk-free investment.

Saving and investing are a dynamic duo

Although we’ve been talking about savings or investing a well-rounded financial plan probably includes both. Saving up for an emergency fund will give you an important buffer for unexpected expenses, and investing can help you reach your bigger, long-term financial goals. Understanding the differences between saving and investing can help you make more informed money decisions and feel more confident in living your best money life.

Please note this information is general in nature and does not take into account your personal circumstances or objectives. You should consider this before acting on any of the information contained.