Saving vs. Investing: What's the Difference?

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The words “saving” and “investing” are sometimes used interchangeably. One example is when we talk about “saving for retirement.” While each has an important role to play in helping you meet your financial goals, saving and investing are two distinct concepts.

In this article, we’ll take a closer look at some of the key differences between the two.

What is saving?

When you save, you’re putting money away in a bank account that’s safe and accessible. There are different types of deposit accounts you could use to save money. One common example is a high-yield savings account, where your money can earn interest and grow at a predictable rate.

If you open a savings account that’s FDIC-insured, you’ll also have the peace of mind in knowing that your money is protected up to a certain amount. Currently, the standard insurance amount is $250,000 per depositor, per FDIC-insured bank, for each account ownership category.

Because savings accounts typically have low to no risk and are more liquid (easily accessible) than investment accounts, they can be a useful place to park your money for short-term goals like an emergency fund or a home renovation.

If you’re shopping for a savings account, consider putting your money to work in a high-yield savings account, which typically carries a higher interest rate than a traditional savings account.

Good to know: Curious about how much you could earn through a high-yield savings account? There are free calculators online – like this one – that can help you crunch the numbers. When it comes to saving money, consistency is key. You’ll be surprised at how much you could save over time just by putting a little away each month.

Reaching your goal starts with saving for it

Reaching your goal starts with saving for it

What is investing?

When you invest, you take cash to buy securities or other investments with the hope of earning a return over time.

Generally speaking, investment accounts are considered less liquid than savings accounts. Certain types of investment accounts (e.g., 401(k), IRA, etc.) have strict withdrawal rules, and you may be penalized if you take money out before a certain amount of time is met. This is one reason why investment accounts are typically used for long-term goals like retirement planning.

You may already be familiar with a few types of investments like stocks, bonds and ETFs (exchange-traded funds), which are often the basic building blocks of a portfolio.

Keep in mind that investments can fluctuate in value depending on market performance. In other words: Investing involves risk. There are no guaranteed or predictable returns. Potential market volatility means your investments could make money or lose money. You could even lose your principal, which is the amount of money you originally invested.

So why do people invest?

Because while you may lose money, there’s also the possibility for gains when you invest. Historically, over long periods, financial markets have generated higher returns than interest earned in bank deposit accounts.

Investing offers you an opportunity to potentially earn a better return than what you could get through a savings account, which could help you keep up with the pace of inflation as cost of living increases over time. The longer you’re able to leave your money invested, the more time it has to potentially grow.

Good to know: A large part of investing is about understanding how to properly balance risk and reward based on your tolerance for risk and the time horizon over which you’re comfortable with having your money invested. That’s why it’s important to think about and understand your goals before you invest. If you’re new to investing, you may want to get in touch with a financial advisor to go over any questions you may have.

Should you save or invest?

Both saving and investing play important roles in your overall financial strategy, so you don’t have to think about it as an either-or option. Based on your financial situation, you could do both! For example, you could build your emergency fund and your nest egg for retirement at the same time.

Here are a few questions to consider:

  • What are your financial goals?
  • How much time do you have to meet those goals (time horizon)?
  • How much risk are you willing and able to take on (risk tolerance)?

When should you save?

Saving can be used to hit short-term goals like building an emergency fund, buying a car or paying down debt. Generally speaking, a short-term goal is anything you’re planning to achieve within a five-year period.

Because earnings from a savings account are typically more predictable (vs. an investment account), you can map out the cost of your short-term goals, figure out how much you’d need to set aside each month and then put your money to work towards that goal.

When should you invest?

Investing is commonly used to meet long-term goals (anything beyond a five-year window), like paying for your kid’s education or planning for retirement. If you have a retirement account, like an IRA or 401(k), you’re already investing.

As noted earlier, even though we say we’re “saving for retirement,” if you look closely at your retirement account, your money is likely being used to invest in some combination of stocks and bonds.

Because investing involves risk, it’s a good idea to understand the basics of investing before getting started. For example, take some time to learn about the different asset classes, your account options and potential investment strategies. You’ll also want to understand the importance of building a diversified portfolio – one with an appropriate mix of assets based on your goals and risk tolerance.

There’s a world of financial literacy resources available online if you’re looking to learn more. If you prefer one-on-one guidance, think about connecting with a financial advisor.

A recap on the difference between savings and investing

The key difference is this: When you save money, you’re putting your money somewhere safe and easily accessible to use for a short-term goal. On the other hand, investing is used for longer-term goals. When you invest, your money is subject to risk, but you could potentially earn a higher return (compared to a savings account) if you keep your money invested over the long term.

Both saving and investing have important roles to play in your financial strategy. If you’re not sure how to prioritize your savings and investment goals, don’t hesitate to talk to a financial advisor who can help put together a plan that makes the most sense for you.

This article is for informational purposes only and shall not constitute an offer, solicitation, or recommendation to buy or sell securities, or of an account type, securities transaction, or investment strategy. This article was prepared by and approved by Marcus by Goldman Sachs®, but is not a description of any of the products or services offered by and does not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA, Goldman Sachs & Co. LLC or any of their affiliates, subsidiaries or divisions. Goldman Sachs Bank USA and Goldman Sachs & Co. LLC are not providing any financial, economic, legal, accounting, tax or other recommendation in this article and it is not a substitute for individualized professional advice. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice.  Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA, Goldman Sachs & Co. LLC are or any of their affiliates, none of which are a fiduciary with respect to any person or plan by reason of providing the material or content herein. Neither Goldman Sachs Bank USA, Goldman Sachs & Co. LLC nor any of their affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.

Investing involves risk, including the potential loss of money invested. Past performance does not guarantee future results. Neither asset diversification or investment in a continuous or periodic investment plan guarantees a profit or protects against a loss.