What is the difference between saving and investing?

Key takeaways

  • Saving and investing are not the same thing. 
  • Saving is setting money aside for things you need to pay for in the near future.
  • Savings are typically accessible and likely to not earn interest that beats inflation and tax.
  • Investments should be made for longer periods that enable you to harness the power of compounding and returns that beat inflation and tax.
  • You should have savings for short-term goals and investments for longer-term goals.

Saving is the act of delaying immediate spending until you accumulate enough to spend on something more worthwhile in future.

We often speak about saving and investing as if they are the same thing, because when you invest you also delay spending to accumulate more for something worthwhile in the future.

However, it is more useful to think of savings as money you set aside for things you need to pay for in the near future, and money in an emergency fund for financial emergencies. Your savings should be the money you want to access quickly.

You may earn interest while you accumulate the amount you need, but the interest is probably not enough to give you growth after inflation and tax. You trade off a lower real, or after inflation return, for the liquidity or ready access that money in the bank can give you.


Returns over the past 90 years show that it would take

86 years to double your money if you invested in cash

10 years to double your money if you invested in equites (shares).




Source: Old Mutual Long Term Perspectives 2021

You will struggle to grow savings in a savings account with a bank, or in a money market fund, to provide for goals like the education of a child or your retirement.

When you invest, however, you put your money in unit trust funds, shares, bonds or real estate with a view to growing your money with inflation-beating returns that can harness the power of compounding over longer periods.   

You have to be willing to commit to your investments for a reasonable period of time, depending on how much investment risk you are taking. Investment terms for funds that invest in shares are between five and 10 years, but there may be times when you need to wait longer to get good real returns.

Save or invest?
Should you save or invest? You need both. A bank savings account or money market fund is good for shorter term goals like saving to buy a new fridge at the end of the year, or to have readily accessible money in the event of an emergency.

Stokvels too are good for saving for short-term goals like Christmas spending, but the stokvels that are making a long term difference in members’ lives are those that are investing contributions for longer term goals.  

You can save or invest for goals like a holiday or a wedding, depending on how much time you have and how much risk you can take.

Long term goals like saving for retirement, or the tertiary education of your children, need investments and long-time horizons.