Saving vs investing - and how to make the most of your money

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MoneyPlus Features Team

July 01, 2021

4 mins read

If you have some extra money stashed away after over a year of lockdowns, you might be wondering if you should save it or invest it. There are pros and cons to both options and important differences between the two.

We look at what you need to know about saving and investing, to help you decide which is right for you and your goals.

Saving - the pros and cons

When you save your money by putting it in a bank or building society account or a cash individual savings account (ISA), you get interest on the money you save, and in most cases you won’t pay tax on it. Your money is also generally secure, and you’ll usually be able to access it instantly.

The biggest drawback with saving is that your money could actually lose value over time as it may struggle to beat the impact of inflation, particularly with interest rates as low as they are at the moment. 

If the price of goods and services is rising, and the value of your savings doesn’t rise with it, you’ll effectively have less money than you started with in real terms. That’s why saving is typically best for shorter-term goals (anything you’ll want to use your money for within the next five years).

Investing - the pros and cons

When you invest your money, you put it directly into investments such as stocks and shares or bonds, or indirectly into these through funds, with the aim of growing its value. You can do this tax efficiently through pension plans and stocks & shares ISAs, although there are other products you can use too.

The main benefit of investing is that there's more potential for your money to grow in value over time than if you were to save it, although there's also risk of it falling in value too and you could get back less than was paid in. Because of this, investing is generally a better option for longer-term goals as it gives your money the chance to ride out any market fluctuations and could benefit from compound growth

Getting the balance right

When it comes to saving and investing, it doesn’t have to be one or the other - it could be a combination of saving and investing depending on how soon you’ll need to access your money and what you’ll need it for.

If you’re thinking long term and are working towards financial goals further in the future, such as retirement, then investing might be the right option. But if you want to access your money in less than five years, saving might be a better option for you.

It’s also important to remember that investing always involves taking some risk with your money. So you need to be comfortable with the risk of potentially losing some money when you invest.

How to make the most of any extra lockdown cash for your future

If your outgoings are lower just now, and you have some extra cash that you won’t need in the short term, you could think about using some of it to top up any regular pension contributions. It doesn’t need to be a permanent decision. You can always decrease the amount you contribute again in the future, or just make a one-off payment with the money you’ve saved if that works better for you.
With interest rates currently at such low levels, and no sign that they’ll rise significantly in the near future, there aren’t a lot of good options out there for savers right now. So investing in your future could be the best way to make the most of that extra cash and potentially give you a bigger pension pot in the future.

If you have a workplace pension, your contributions are generally taken from your salary before it’s taxed. So not only will you save on income tax, you’ll benefit from tax benefits on the extra contribution too. And now that we’re into a new tax year, you also have a new pension allowance to work with - currently £40,000 per tax year for most people who haven’t already started accessing their pension money. Remember that tax and legislation may change and your own individual circumstances, including where you live in the UK and how the scheme you’re a member of operates, will have an impact on your tax treatment.

If you want to see what impact topping up your pension contributions could have on the future value of your pension pot, use our handy pension calculator. You might be surprised at the difference it could make. 

You’ll need to include the value of your current pension plan, as well as any other pension plans you may have. You can find out how your Standard Life pension plan is doing by logging in to or registering for our online services. While you’re there, it’s a good idea to review your investments to make sure they’re still aligned with your goals. This is also where you can top up your pension contributions if you decide that’s right for you.


The information here is based on our understanding in April 2021 and shouldn’t be regarded as financial advice.



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