If we are lucky enough to have some money to spend then we may want to put it in a savings account or invest it somewhere so that it can earn some money for us. It is wise though, to make sure that we are aware of the difference and that we make the right choice for us.
Main Differences Between Savings and Investments
A savings account can normally be found at a bank or building society. It is the type of account where you put in your money and you will get paid some interest perhaps every month of every year. You will be able to choose whether to have an instant access account which tends to pay low interest or a notice account that will pay more. With an investment the money is used to buy a product, perhaps a house, some art work or a share of a company. You may be able to sell at any time but whether you make money depends on the value of the item when you sell it.
How Much Risk to Take
It is worth noting that with an investment, you could find that the value of the item will drop or even become worthless so you could find that the value of your investment is nothing. However, the amount of risk will vary depending on what type of investment you take out. Many people use a financial advisor to help them and they will explain how much risk they are willing to take and this will allow them to point clients in the direction of an investment that will suit their needs. It is often the case that the more risk that is taken, the more likely it is that the investment will have a big return but of course there may be no return at all. The lower risk investments tend to have a lower return, however, they may still be higher than that from a savings account.
Access to the Money
If you invest, then it is best to be prepared to keep your money tied up for a long period of time. Investment naturally fluctuate in value and so to override this people tend to keep their money invested for at least ten years. With savings, people might want to tie their money up a little bit and there are bonds which will pay higher interest than regular savings where money can be tied up but it will much safer. There are also savings accounts where you have to give notice to make a withdrawal which will also pay interest that is a bit higher compared to instant access savings accounts.
It is therefore said, that you should only invest money that you are prepared to lose and can do without. This can be a bit extreme, as there are safer investments that you can try out and many people use these to make money for their interest only mortgages or retirement. It is always worth knowing exactly what you are getting into though and making sure that you are aware of the consequences. Of course, we all have different attitudes towards risk taking as well and that will have an impact on out decision. It is a decision that we should not make quickly. It is well worth talking it over with someone. If you do not have a financial advisor or do not want to pay one, then talk it over with a friend or family member and they may be able to help you. Try to find someone who has invested themselves and they will be able to help you out by letting you know about their experience.