Saving
Your savings grow over time because of the snowball effect of compound interest – or earning money on your money (capital). When you save money, you usually earn interest on your capital. The next year, you earn interest on your original capital and the interest from the first year, and so on. Even a small amount saved each month, say £50, can soon add up.
Whether you choose to save or invest depends on your financial goals.
Investing
With investments, there are three things you need to think about in order to get the best potential return:
- How long you're able to leave your money (we recommend that you invest for at least five years)
- How tax efficient your investments are
- How much risk you're comfortable with.
Planning
When planning your finances, think about your short-term, medium-term and long-term goals, and how much money you need for them. This will give you an idea of how much you need to save or invest over different periods. Stock market investments normally need a commitment of at least five years. Clearly, the longer you're able to leave your investment untouched, the more opportunity there is for it to grow.
The value of investments could go down as well as up, meaning you could get back less than the amount you originally invested. You should plan to invest over the medium to long term, with at least five years as a minimum. The information about tax is based upon our current understanding of tax legislation. The value of tax benefits will depend on individual circumstances. Tax laws could change in the future.
