What's the difference between saving and investing?

Saving and investing are two very different financial strategies. Once you understand the difference between saving and investing, you may do a better job of managing your money. Why? You’ll have a better grasp on when it’s appropriate to save money, when it’s better to invest, and which financial products are right for each goal.

Saving is a good strategy if you’ll need your money in a short time. While interest rates spiked to more than 9% in 2022, since then it has gradually fallen. Good news for savers – interest rates on high yield savings accounts and CDs are beating inflation.¹

Investing is often a smart strategy for achieving longer-term financial goals. When you don’t need your money right away, you can afford for your investments to fluctuate in value.

Consider putting money into a savings-type account if you need it within a short time. A typical market cycle is five-to-seven years, so if you need the money in less time than that, it’s a good idea to put it in a savings account. Saving is also a good strategy if you plan to completely fund the goal yourself, and don’t need to rely on your money growing significantly.

Investing can be a good approach when you have longer-term financial goals or need to earn significantly more money than you could by saving it.

Savings 

• A high annual percentage yield (APY) is a good figure to compare interest rates. Most banks pay low interest rates on deposits, but there are differences, so shop around.
• Monthly fees. Some banks waive fees if you have a large enough balance or meet certain criteria. Others won’t charge a monthly fee no matter what. Try to find a savings account that’s free for you.
• Local or online. Location might be important, but keep in mind that most digital banks emphasize online tools to make it easier to save and to manage your account from anywhere.
• Easy access to your cash when you need it.

Investing

• Fees and other investing costs. Generally, there are fees and possibly commissions associated with investing. But fees can vary widely, depending on the broker and what investments you make. You'll want to look at this carefully.
• Range of investment choices and accounts available. Make sure your broker offers the types of accounts you need and access to the markets and products, such as mutual funds and ETFs, that you might want.
• Research and other tools. There are literally tens of thousands of stocks, bonds, funds, and other investments available on the various markets. Easy-to-use research tools, investment screeners, and other educational resources can make a big difference when you're trying to find the right investments for you.
• Support. Your investments are important—it's your money, after all. Can you get your questions answered and problems solved quickly and efficiently? 
• Easy access to your cash when you need it. In the end, both saving and investing have their place, and many people will do them simultaneously. That's because most of us have specific short-term goals for which saving is appropriate as well as long-term objectives where investing may make more sense.

Most people benefit from a diversified approach to their finances that includes both saving and investing. For instance, you might store money in a savings account for your end-of-year property tax payments or next summer’s vacation. At the same time, you might invest money you’ve earmarked for a future business opportunity and for retirement.

Review the pros and cons of saving and investing to better understand and to choose the best accounts to help meet your financial goals. 

Article Footnotes

¹ CNBC, 2024, Inflation falls 0.1% in June from prior month, helping case for lower rates, https://www.cnbc.com/2024/07/11/cpi-inflation-report-june-2024.html

The source of this Morgan Stanley article, What’s the Difference Between Saving and Investing, was originally published on July 23, 2024.

CRC# 3929503  01/2025