When planning your finances, it is important to distinguish the difference between savings and investments. Savings are generally funds that you set aside but can be accessed relatively quickly. These savings are often for a specific need or purchase, like a holiday or a new car. The most common way of ‘saving’ is into a bank account (‘deposit’ account) where the money can be accessed in an emergency, and for every £1 you put in, you will get £1 back and possibly some interest.
Investments are designed to be held for a longer term, usually at least 5 years. You need to be comfortable with tying up this money for a period of time and should not consider investments unless you have some savings in place. Most investments are not guaranteed to return your money in full, although do offer the prospect of potentially higher returns than deposit accounts. Returns, risk and volatility are the factors that will determine a suitable place for your savings.
Savings and Investment products range from a simple current account, which allows a small amount of interest, but facilitates regular payments and withdrawals without detriment to your savings. At the opposite end of the scale would be company shares, where you invest money in a company, with the prospect that the company will prosper, and the shares will increase in value over time. Whilst the benefits are potentially high, the risks are also much greater.