What Is The Difference Between Saving and Investing?

• By Natalie Wilson
• 11-01-2024
• Mobile Apps

No matter what your goals are, saving and investing are great ways to put money away for a future rainy day. They are both important concepts for creating a secure financial future, but they are not the same and involve very different things. Although both can help you achieve a solid foundation for years to come, people need to understand more about the differences between saving and investing.

Both saving and investing involve important elements of your finances and starting as early as possible is a great way to set yourself up for the future. Here, we will look at what saving and investing is, as well as the pros and cons of each, as well as how to understand each of these concepts a little better.

What Are The Similarities Between Saving and Investing?

Saving and investment have several different features which make them different from one another, however, they also share a variety of similarities. One of which is that they are both designed to help you put away and accumulate money for the future. Both also use specialist accounts, held with a financial institution, to increase in value over time. For those saving, this will mean opening an account with a bank, whereas for investors this will mean opening an investing account with a broker or other means, such as a crypto trading platform.

Savers and investors both need to realise and understand the importance of having money saved. Investors need to have sufficient funds within their accounts to cover emergencies and any other unexpected or unforeseen costs. Both saving and investing involve putting money away which you are planning to leave alone for long periods for it to increase and grow for your future.

What Is Saving?

People can save money for both large purchases or in the event of an emergency. Saving is an important aspect of personal finance management and planning which involves individuals setting money aside for future use. Rather than using a piggy bank, saving has become more sophisticated and you can use a savings account so that you can grow your interest over time. People look to save for different reasons, whether it’s for a new game console, a holiday, a special occasion such as a wedding or to simply have an emergency fund for life’s unexpected expenses.

Saving is a good way to meet those short-term financial goals or prepare for unexpected emergencies, such as car repairs or vet bills. By saving money and putting it aside regularly, you can build up a safety net for future you to help during tough times, or to put towards something you want. Saving money is seen as a low-risk expenditure, meaning that your money is very safe, but typically interest rates on saving accounts are quite low, so this is something to bear in mind.

Pros and Cons Of Saving Money

Saving comes with many benefits, but there are also some disadvantages which individuals need to consider. Although saving is a crucial part of a saving plan, some people suggest combining it with other forms of investment or savings to achieve a more balanced approach when it comes to your financial planning.

Pros

• Build up an emergency finance fund
• Put towards short-term goals such as Christmas, holidays or buying new items
• Very minimal risk of loss, as savings are typically protected when using a savings account in a bank

Cons

• Lower yields in terms of returns
• Can be affected by inflation

What Is Investing?

Investing is a way of growing your money over time by putting it into financial assets, such as stocks, bonds, funds and crypto. Unlike savings accounts, investing involves some risks but it also has the potential to gain higher returns over time. Investing is a way in which you can reach long-term financial goals, but as it involves taking risks you need to choose investments that align with your personal values and risk tolerance.

Typically speaking, the longer you can invest and the more risk that you can take on, the higher the likelihood of you gaining more return, because you can get an idea of how the market will react and works. One important thing to remember with investing is that it comes with no guarantees and there is always the risk of losing money.

You should also remember that investing involves spreading your money across different areas. Whilst this can help you to grow your finances in the long-term, unlike cash, investment can fall as well as rise in value so there is a chance that you get back less than what you originally invested.

Pros and Cons Of Investing

Investing comes with the potential of gaining higher returns than saving accounts and gives you the ability to grow your wealth over time through reinvestments and compounding of finances. But, there are also some cons which come with investing. The largest is that there is a lot more risk associated with investing than with savings accounts.

Pros

• Investing has the potential to generate higher returns than savings accounts
• Can help you achieve large long-term financial goals
• Diversification can reduce the risks involved

Cons

• Heightened risk of loss, especially if done short-term
• Potential risk of falling victim to trading scams, such as forex scams and fraud, resulting in lost funds
• Requires a lot of time, discipline and commitment
• May require a longer time frame to get the desired results

Which Is Better - Saving or Investing?

It is all dependent upon the individual circumstances. Whilst saving might be the best option for some, investing will be the better choice for others. It comes down to your current financial position.

When To Save Money

If you need quick and easy access to the money within a few years, then a high-yield savings account will be the better option for you. If you are working on building up an emergency fund, then a savings account will provide you with much better results and means you are using a lot less risk when it comes to your finances. If you are also working towards paying off high-interest debt, such as credit cards, then a savings account provides you with less financial stress than if you needed to invest to generate your savings.

When To Invest

If you don’t need quick access to the money in the near future (around 5 years) and you’re comfortable with taking risks, then investing may be a better option for you. Investing often offers higher returns, but this is because of the risks associated with it.

Investment Apps - Which To Use

Now that we know more about the differences between trading and investing, it’s important to also learn more about which forms of investing to use. Investing apps are the most popular way to invest and are aimed at DIY investors who want to take their investing future into their own hands. Investment apps allow traders to buy and sell crypto, stocks and funds, but it is a market which is highly competitive. Whilst some apps come from legitimate broker names and trading platforms, there are others which are stand-alone app providers.

The best trading and investment apps offer users flexible options, customised trading portfolios, market research and low fees, as well as access to numerous different investment strategies. With that in mind, let’s take a look at some of the best rated investment apps to use.

Charles Schwab

Charles Schwab is a good investment app choice for stock traders. It is an app which comes with no account minimums or the risk of incurring additional fees. With this app, you can choose between almost any type of investment account which you want, as well as most types of investments. With stock trades, the Charles Schwab app is ideal for all users, whether for those new to trading or experienced investors.

As well as this, the app also offers a fee-free automated adviser, but you will need roughly $5k in investment funds to get started. The Charles Schwab app makes it easy to access and view your accounts, and check positions and balances. You can also check news, research stocks, and view trade types.

XTB

XTB is known for being one of the best stock brokers in the UK, with the ability to trade online, through the dedicated app or on the native desktop. Whichever option you choose, the trading platform is packed with different features that are handy for traders, including market analysis tools, tech indicators and execution speed tests.

The XTB platform gives investors two different types of trading markets to choose from. Firstly, you can invest in traditional stock markets, meaning that you then own the underlying shares of whichever you buy - there are over 3,000 supported stocks on XTB, and you don’t have to pay any commission. US stocks are also included, meaning that for example, you can buy shares in Tesla at a cost-effective GBP price. UK shares include BT, AstraZeneca and GlaxoSmithKline.

The other option you have on XTB is stock CFDS. They are also commission-free, just like other shares, which is one of the many benefits. No matter which stock option you choose, you will be able to get started with a free demo account, which allows you to trade stocks within live market conditions, without any risks. You can also trade with real money should you wish to get started straight away, and no minimum deposit is required.

What Is An Investment Trading App?

Investment trading apps are popular as they give investors a way to buy and invest in stocks, shares, crypto and other assets directly, rather than through the use of a broker or financial advisor. Within its simplest form, investment trading apps give investors software to use for their trades and investments through an easy-to-access app on their phone or tablet, although there are some platforms which also offer desktop and telephone trading.

The investment trading app market has seen significant growth in the past few years. As of December 2023, there were roughly 7,000,000 app downloads in the investing sector. Investment trading apps allow traders and investors to view their investments in real-life data, and this then enables them to make better and more informed investment decisions. Apps also tend to offer more advanced features which then allow investors to make trades and investments almost instantaneously.

One of the risks, however, that comes with using trading apps is that there is an increased chance that traders and investors will become susceptible to making impulse investments or over-trading, which may then lead to them losing funds. It is important that investors understand that trading and investing can be a long-term investment method, but is often based on short-term movements and this can be challenging, even for the more experienced traders and investors.

Are Investment Trading Apps Worth It?

Investment trading apps are most appealing to investors who want to make trades and investments on the move. Although most trading platforms offer the use of an app, it is well worth comparing fees and the range of investment options which are available on each app, as these can vary widely depending on the app provider. There are some investors who may wish to use a more advanced functional scope, compared to newer investors who want to get used to trading platforms before they begin trading with real money or making large investments.

It has been found that around 10% of adults in the UK use a DIY (direct to consumer) trading platforms, which has increased largely since 2020. There has been a much higher level of uptake from male traders and investors compared to female investors, with those aged between 25-34 more likely to invest.

Investment trading apps are a relatively safe way to make trades and investments, with many platforms using security protocols similar to those for desktop trading, with the requirement for passwords, PIN and two factor authentication. If you are considering getting started with investment trading apps, then it’s best to do your research beforehand and become familiar with the protocols before parting with your funds.