Should you save cash or invest?

Find out why some people hold cash and others invest, and take a look at the differences between saving and investing.

The value of investments can fall as well as rise; you might not get back what you invest. If you’re not sure about investing, seek independent advice.

Cash saving Vs Investing

The choice between holding cash in a bank account and investing could have a big impact on your future wealth. Moreover, these two ways of holding and building wealth are very different:

Cash saving

When you hold cash in a bank account, the money is generally available to you in the short-term, and you expect to get back what you put in with interest added on top.


When you invest, you hope for greater returns than you can get from staying in cash, but you have to accept that you might get less, and you might lose money and you could get back less than you originally put in. You also need to hold investments for the longer-term – at least five years - to give them the best chance of getting that greater return you hope for.

Why do people save?

People often think of saving in bank accounts before investing because they:

  1. Are used to saving from a young age
  2. Aren’t sure how to invest
  3. Like to have easy access to their money, especially if they’re saving for a short-term goal
  4. Are uncomfortable that the value of investments can fall, and so there’s a chance they could lose money.

Why do people invest?

People might choose to invest because they:

  1. Are looking to achieve potentially higher returns on their money than they might get from holding cash
  2. Are prepared to accept the risk that the value of their investments could fall
  3. Find investing online as easy as putting cash into a bank account
  4. Are comfortable with the idea of setting their money aside for the long term - for at least five years.

There has been a large difference in returns in the past

Over the nine year period from January 2010 to December 2018, holding cash would have produced very different returns compared with investing in shares or bonds. You do need to bear in mind that the past performance of investments is not a reliable indicator of their future performance. But here is what would have happened if you had started with £10,000 in January 2010:

Graph showing the total returns over a nine year period

Total returns over the nine year period

If you started with £10,000 in January 2010, here’s how much it would have been worth by December 2018:


Returns from cash held relatively stable over the period and didn’t produce any negative results.

Returned 5.8%

If it was held as cash:


Cash is represented by 3 Month GBP Libor.

Find out about cash


Returns from bonds tended to rise and fall over the period, producing a negative result after four years.

Returned 42.8%

If it was invested in bonds:


Bonds are represented by iShares Global Govt Bond UCITS ETF USD (Dist) (GBP) | SGLO.

Returns are net of a 0.20% annual ongoing charge.

Learn about bonds


Returns from shares tended to rise and fall sharply over the period, often year-by-year, with initial gains almost lost after the first two years.

Returned 137.6%

If it was invested in shares:


Shares are represented by iShares MSCI World UCITS ETF USD (Dist) (GBP) IWRLD.

Returns are net of a 0.50% annual ongoing charge.

Shares explained

Saving over investing

When investments were held for short-term periods, less than five years, returns were volatile while returns from holding cash were steady.


Investing over saving

Investing in bonds, shares, or a diversified mix of these, over the full nine-year period earned better returns than holding cash.

Bear in mind that while this is what happened in the nine year period between January 2010 and December 2018, other time periods may have produced different results, and the returns from holding cash could have been higher than the returns from investing.

For example, in 2008, around the time of the global financial crisis, stock markets suffered significant losses, some of them falling spectacularly. Those who invested just before the market collapsed would have seen their portfolios plummet in value.

Of course, no one knows how investments and deposits will perform in the coming years, and past performance is not a reliable indicator of future returns.

Annual returns over the last five years

Here are the returns for each calendar year for cash, bonds and shares over the last five years:

Annual returns
  Jan 2014 - Dec 2014 Jan 2015 - Dec 2015 Jan 2016 - Dec 2016 Jan 2017 - Dec 2017 Jan 2018 - Dec 2018
Cash 0.5% 0.6% 0.6% 0.3%
Bonds 5.6% 2.3% 22.3% -3.4% 5.2%
Shares 12.4% 3.7% 29.3% 11.7% -4.0%

All of the figures used are nominal in value, i.e. they exclude the effect of inflation which would reduce the returns in real terms.

Should you save or invest?

The decision of whether to hold cash or invest is down to you. The choice between saving and investing should be based on your individual circumstances and your life goals and ambitions.

Short term goals less than 5 years

If you’re setting aside money for a short-term goal and you think you’ll need access to your money within the next five years, saving in a bank account would allow you to do this with little risk of losing money. There is, however, the chance that the interest you earn on your savings may not keep pace with inflation, or the rising cost of living.

Long term goals more than 5 years

If you’re planning further ahead and don’t think you’ll need your money for at least five years, or more, investing might offer you the chance of better returns than you could get from saving in a bank account. Over the long term investing may also allow you to keep up with or even beat inflation.

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The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances.

Investment Account

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Investment ISA

An easy way to start investing

Also known as a stocks and shares ISA, an Investment ISA is a tax-efficient1, simple way to invest for your future. Invest up to £20,000 per year and the returns you make from your investments are tax-free.


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