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Growing your wealth: should you invest or save?

Paul Marshall avatar
Paul Marshall
- 9 min read
Growing your wealth: should you invest or save?

Whether you're striving to expand your wealth or expedite your savings for future endeavours, there are various avenues to make your money work for you. Two common methods are investing in shares or stashing your funds in a savings account or term deposit. However, determining the best approach is not always straightforward.

Investing and saving, while both aimed at growing your wealth, function quite differently. This can make deciding where to allocate your money challenging, especially in light of economic uncertainties, such as sticky inflation, rising interest rates, and the cost-of-living crisis. Some investors even predict an upcoming stock market correction or crash, further complicating the decision.

To help you navigate the intricacies of each financial option and determine the right one for you, let's compare investing and saving.

Investing vs. savings: how they operate

Saving involves setting aside a sum of money, either in a savings account or term deposit, with the goal of growing this wealth for future use. Essentially, saving entails parking your money in the bank, where it accrues interest, until you're ready to use it.

Both savings accounts and term deposits come with interest rates designed to increase the funds over time, with savings offering variable rates and term deposits featuring fixed rates. With a savings account, you can make regular contributions over time while maintaining access to your money. With a term deposit, you lock your money away for a specified period and receive it back at the end of the term.

Investing involves buying and selling shares on the stock market, which requires careful analysis and strategic planning. Investing essentially means risking your money now with the hope of generating more in the future.

As an investor, the value of your investments, minus any liabilities, evolves over time based on your trading decisions. Similarly to the interest earned in savings accounts or term deposits, your share investments may also yield income in the form of dividends. In simpler terms, investing involves leveraging a company's capital growth to grow your own wealth.

Risk vs reward

Risk and reward are crucial factors to weigh when deciding where to allocate your hard-earned funds, and they differ significantly between saving and investing. Saving carries virtually no risk but typically offers lower returns, while investing comes with higher risk but the potential for more substantial returns.

According to Vanguard, Australian shares have generated an average annual return of 9.2% over the past 30 years, compared to a much lower 4.2% return for cash. Given these rates, a $10,000 investment in shares over this time would grow to $138,778, while the same amount invested in cash would only become $34,737 - a significant disparity.

However, while historical data suggests shares outperform savings accounts over the long term, past performance doesn't guarantee future results. Investing always carries a level of risk because values can fluctuate, sometimes rapidly, depending on where and what you're investing in. This unpredictability means there's a possibility of losing your entire investment if things don't go as planned, or if the stock market experiences a correction or crash.

In contrast, savings accounts and term deposits, being bank-based, offer the inherent advantages of security and government backing. They are both guaranteed by the federal government under the Financial Claims Scheme, ensuring that your money remains safe even if your bank faces financial trouble.

To maximise your rewards, it's important to ensure that your rate of return exceeds the current inflation rate, as falling short can erode your purchasing power. Additionally, be mindful of the impact of taxes on interest, which may reduce your overall returns.

In a nutshell, investing involves more risk, while saving provides a higher level of safety and security.

Predicting outcomes

Another substantial distinction between these two wealth-building methods is the ability to foresee your financial future. While it's possible with savings, investing doesn't offer the same luxury.

Investing in shares is rooted in the stock market, which is in a constant state of flux. It's impossible to predict exactly what it will look like in the near or distant future, making it challenging to forecast the fate of your investments and the potential gains from selling them at a specific time. Although experts may make educated guesses, they admit that 100% accurate predictions of price movements are elusive. Consequently, investors must ride the waves of the market, formulate well-informed investment plans, and seize opportunities for potential profits as they arise.

Savings accounts and term deposits, in contrast, allow you to anticipate your returns in advance. You know the interest rates and terms upfront, making it easier to calculate your estimated returns. This predictability simplifies the process of gauging how close you are to reaching your financial goals within a specific timeframe.

Level of involvement

Investing often demands more involvement and effort compared to depositing your money in a savings account or term deposit for safekeeping. It's more intricate and dynamic, requiring attention to economic and market fluctuations, company profiles, and selecting the right shares. There are also plenty of alternative investment asset options that could be worth exploring. To succeed in investing, you must invest both time and effort consistently, especially during periods of market volatility. Additionally, patience is essential, as selling investments during market downturns often leads to losses.

On the other hand, savings accounts and term deposits may offer a more hands-off approach to growing your money. With term deposits, you simply retrieve your funds at the end of the term. For savings accounts, you can automate deposits to ensure consistent contributions toward your financial goals without active management. In essence, saving allows your money to grow without the need for constant monitoring and involvement.


Investment returns may compound over time, but costs also accumulate. Depending on your investment approach, you might incur fees when buying and selling shares, including those associated with your investments, the stock exchange you use, and any broker services you enlist. It's crucial to compare different investment methods to ensure that the costs, no matter how seemingly minor, don't erode your returns over time.

In contrast, savings accounts and term deposits are designed to be cost effective. Unlike some financial products, such as transaction accounts or credit cards, these accounts are typically free from account opening and maintenance fees. However, breaking the terms and conditions, such as exceeding your savings account withdrawal limit or accessing funds from a term deposit prematurely, can lead to penalty fees. It's essential to read the Product Disclosure Statement (PDS) to fully understand the associated costs and avoid unnecessary expenses.


Money in a savings account or term deposit is typically more readily available than funds invested in shares. You can withdraw your earnings from a savings account as soon as it's open (subject to withdrawal limits) or at the end of a term for term deposits, which typically range from one month to five years. It may be possible to withdraw money from a term deposit early, but you may need to give at least a month’s notice, and you may miss out on some of your interest returns.

In contrast, accessing money from share investments requires finding the right time to sell your assets, ideally when they've appreciated in value. This could take years, depending on market conditions and the performance of your chosen shares, meaning you may need to wait a while before realising your gains.

Financial goals

One significant distinction between investing and saving is the purpose they serve in wealth building. Investing may be primarily designed to grow your wealth over time and fund long-term goals, such as covering a child's education expenses or securing your retirement. On the other hand, your savings may primarily be meant to provide financial security in case of emergencies and support short-term objectives, like buying a car or travelling abroad.

Therefore, the intended purpose for growing your money may influence whether you should invest or save. If you anticipate needing access to your money within a couple of years, saving might appear to be the more prudent choice. This is because if the share market experiences a downturn, your investments may not have enough time to recover before you require the funds. Conversely, if you have a longer time horizon before you'll need to access your money, investing may seem like a more sensible option. 

As a rule of thumb, Moneysmart.gov.au suggests a time frame of 0-3 years for savings and at least 5 years for investing.

The bottom line: No one-size-fits-all solution

In the battle between investing and saving, there's no clear winner. The decision largely depends on your individual situation and financial objectives. It's crucial to weigh your options carefully and make a choice aligned with your short-term and long-term needs. This might entail opting for investing, saving, or even a combination of both.

While saving and investing can sometimes appear to be opposing strategies, together they can play a vital role in your comprehensive financial plan and have a significant impact on your overall financial wellbeing. Diversifying your money across various saving and investment avenues can help mitigate the risk of losing some or all of your funds, instilling greater confidence in your wealth-building efforts.

When determining which financial path is right for you, ask yourself the following questions:

  • What do I want to achieve?
  • How long is my investment horizon?
  • What is my risk tolerance?

Answering these questions will help you determine the most suitable course of action. Remember that you don't have to navigate the journey to financial growth alone. A financial advisor can provide valuable guidance to help you decide whether investing, saving, or a combination of both aligns best with your goals and pave a strategic path to financial success.

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Product database updated 19 May, 2024

This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.