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Saving and investing

There are lots of different ways to save, for example by paying some of our wages straight into a savings account at the bank or building society or becoming part of a Christmas saving scheme. However we choose to save, the general idea is the same: that we build up some money – savings – that we can use if we need to, for example to buy a big item such as a new fridge, go on holiday or to cover the cost of expensive times like Christmas. Having savings also gives us security by making sure that we have some money put aside for emergencies or unexpected costs.

This section provides information on saving and investing

What's in this section

Before you save

Before you can save, it is important to know how much spare money you have to put away. Why not look at our section on Budgeting to learn more?

It is also a good idea to pay off any debts (apart from your mortgage) before you start saving or investing because the interest you pay on debts will usually add up to more than the interest you make through saving. See Debt.

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Finding the best place for your savings

Once you know how much money you have to save, the next step is to find the best place for your savings. As interest plays a big part in helping savings grow, many people look for a savings account that pays the highest interest. For an explanation of what interest is and how it helps our savings grow, see Interest.

  • Bank or building society savings accounts – banks and building societies are probably the most common place to save money. They offer different sorts of accounts, for example those that you can get your money out of straight away and those that tie your money up for a month or so. The money pages of the weekend newspapers usually have tables featuring the accounts with the best interest rates.
  • Individual Savings Accounts (ISAs) – the Government introduced ISAs in April 1999 to try to encourage more of us to save and invest our money. They allow us to save or invest a certain amount of money each financial year (which runs from April to April) without having to pay tax on any of the income we receive. See the HM Revenue & Customs leaflet explaining all about ISAs (link opens in a new window).
  • National Savings – these are savings products issued on behalf of the government, which makes them a very safe way to save. With National Savings (link opens in a new window), you earn interest as you would with a bank or building society.
  • Credit union savings accounts – credit unions offer savings accounts that are similar to those you find at banks or building societies. The differences are that to save with one, you need to be a member of the credit union and instead of getting interest, you get what is known as a dividend. This is an extra sum of money that is like interest but it usually gets paid as a lump sum once a year. As dividends depend on a credit union’s profits for the year, there is also no guarantee that you will get a dividend every year. To find out more about credit unions, see The Association of British Credit Union Ltd website (link opens in a new window).
  • Christmas saving schemes – because Christmas is such an expensive time for most of us, clubs have developed to help us save up throughout the year. This means we do not have to pay for everything in one go or run up debts to cover costs. Christmas clubs are run by a wide range of organisations such as the Post Office, credit unions, shopping centres and supermarkets. See the Money Advice Service information: Saving for Christmas (link opens in a new window).

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Investing for the long term

As well as saving, people also invest money. This is similar to saving because we still put aside some of our money, but instead of saving into an account we invest it. This means that we buy something that we hope is going to go up in value so that when we sell it we will have more money than we started with. Examples are property and shares. When we invest, most of us are usually trying to build up a pot of money for the future, for example for our retirement or for further education for our children.

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Understanding risk

With investments we tend to tie up our money so we cannot get hold of it in the short term and we also usually take some sort of risk with our money because there is no guarantee that whatever it is we are investing in – perhaps some shares or a house – will go up in value. Instead, they might go down in value, which means we would end up with less money than we started with. The reason people are willing to take risks with their money is because where there is also usually the chance to make more money. If you are not happy to take the risk then you can save your money instead, putting it somewhere safe where it will not have the opportunity to grow rapidly but you also will not run the risk of losing it.

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Further information

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Last updated: 3 April 2014

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