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Saving vs. Investing

If you’re not sure whether it’s time for you to start investing, or if you should focus on saving, the answer depends on your goals, risk tolerance, and financial situation.

The difference between saving and investing

  • Saving — putting money aside gradually, typically into a bank account. People generally save for a particular goal, like paying for a car, a down payment on a house, or any emergencies that might arise.
  • Investing — attempting to grow some of your money by buying assets that have the potential to increase in value or pay a higher interest rate, such as stocks, bonds, or real estate.

Should you invest now or wait?

You may want to consider starting your investment strategy after you’ve:

  • Built your emergency savings. Savings should come first. Before investing, try to make sure you have a separate low-risk, liquid account you can use to cover expenses during an unforeseen event — typically at least three to six months worth of living expenses held in cash.
  • Paid off high-interest debt. By paying off high-interest debt in full, you’ll help reduce the total amount you owe faster and free up money to put toward savings or investing.
  • Maxed out your 401(k) and IRA. If your long-term goals include a comfortable retirement and you’re already contributing the maximum amount to your retirement accounts, it may be an appropriate time to explore additional investment types.

Compare saving vs. investing

Saving

  • For the short term. Typically for smaller, near-term goals like saving for a large purchase or an emergency.
  • Involves minimal risk. Your funds may be insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor, per FDIC-insured bank, per ownership category.
  • Earn interest. You can earn interest by putting money in a savings account, but savings accounts generally earn a lower return than investments.
Compare savings accounts

Investing

  • Usually used for long-term goals. Investing may help you reach long-term goals, such as paying for a child’s education or planning for retirement.
  • Longer wait to access invested funds. When you invest your money, depending on the type of investment, it often takes longer to access your money compared to a savings account.
  • Involves risk. Investing does not guarantee a return, and it is possible to lose some or all of the funds invested.
  • Earnings potential. Investments typically have the potential for higher return or higher interest rate than a savings account.
Learn about investment types

Get prepared if you’re planning to invest

If it’s not time to invest yet, you may want to evaluate your financial priorities. One way is by using our My Money Map online tool — where you can track your spending, start a budget, and track savings in easy-to-understand charts.

Use My Money Map

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