Are you in the lucky position of having some money to save or invest? Congratulations. What are your plans for your cash? If you want to know what would be best for growth,Rose Financial Services can help clients across South London and the wider capital plan with confidence. Read on for guidance.
Core differences between savings and investment accounts
The main difference between a savings account and investing is the uncertainty that comes with investing. With savings, you’ll get back what you put in, whereas there’s always a risk when you invest.
Personal savings allowance limits
Good news: you can earn interest on your savings without paying tax on that interest. This is called your Personal Savings Allowance(PSA). The allowance you get depends on what rate of Income Tax you pay:
- Basic-rate (20%) taxpayers can earn £1,000 in savings interest per year with no tax.
- Higher-rate (40%) taxpayers can earn £500 in savings interest per year with no tax.
- Additional-rate (45%) taxpayers have no allowance.
Growth potential and risks of investing
If you’re not likely to touch your money in the next 3 to 5 years and have a longer-term target, an investment account might suit you. With our advice, you can invest that money in a way that has growth potential. The only problem? As with any investment, there’s a risk. How comfortable are you with market fluctuations?
When savings make sense vs investing
If you’re deciding whether to save or invest, here’s a guide that may help:
You might be better off with an UK tax-free savings account if:
- Your savings are for a short-to medium-term goal, such as for a holiday.
- You want to earn interest on your savings. This is paid gross for non-ISA products and tax-free for ISA products.
Please note: While your savings won’t go down, inflation can reduce your money's value if kept in savings for too long.
You might be better off investing if:
- You want the chance of growing your money over the long term (typically 5 years or more) and you could earn more than you would by getting interest.
- You want to reduce the long-term impact of inflation, which can affect instant-access savings accounts.
Please note: the goal of investing is to leave your money untouched for as long as possible. Investing might not be the best option if you need regular access to your money.
Using both together for balanced planning
The happy medium is to save and invest at the same time. This means analysing your financial situation, including debts, income and interest rates on borrowing. Ask yourself, ‘How much can I afford to put away?’ Since there are so many different types of tax-free savings and investments, and there are potential risks with investments in particular, it’s wise to seek our expert advice which can be tailored to your circumstances.
Next steps
Want to know more about savings and investments? Talk to us.Rose Financial Services, based in South London, has the expertise to explain the best options for you and your situation.
