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Finance 101

Saving vs. investing: which is right for me

November 20, 2019

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Saving vs. investing: which is right for me

Finance 101

When should you save, and when should you invest? The answer depends on what you have planned for the future—and what you want to do with your money. 

First, let’s look at the most important differences between saving and investing. Then, we’ll help you figure out which is right for you.

In this article we’ll cover:

The differences between saving and investing

Broadly speaking, when you put your money in an investment account instead of a savings account, you can expect to earn a greater return in the long run, but with some risk. Your return depends on how your investments perform.

When you put money in a savings account, it collects interest at a steady, rarely changing rate that’s set by your financial institution. You’re guaranteed to make a predictable return, though it’s likely less than you would earn if the money were invested.

How a savings account works

The money you put in your savings account earns interest. A typical savings account might earn 0.05% interest annually. 

Let’s say you deposit $1,000 on January 1, 2019. Then, you leave it alone. On January 1, 2020, you check your account balance, and it’s $1,000.50. That’s savings interest at work.

A gain of fifty cents may seem measly, considering you tied up $1,000 for a whole year to get it. If you want to maximize interest on the money in your savings account, you should opt for a high interest savings account (HISA).

A high interest savings account gives you a higher interest rate than a standard savings account – you can expect to get 1.5% or even 2% returns on your savings. Be aware that some financial institutions may have promotions where the interest rate offered is higher in the first few months, but then drops considerably. Others may have restrictions on minimum balances and how often you can make withdrawals. 

Wouldn’t you know it! If you’re looking for an account that earns high interest with no fees or minimum balances, WealthBar has you covered with a high interest savings account that earns 2% interest, available to all invested clients.

How an investment account works

When you put your money into an investment account, you’re able to invest the money in a variety of assets, most commonly stocks and bonds. 

All investments have a certain level of risk. If you’re new to investing, that can sound scary, but keep in mind that risk and reward go hand in hand. While the stock market sometimes experiences a dip, historically it has always gone up in the long-run and as an investor, you can benefit from these gains. 

The type of investments you choose will depend on your goals for the future, and how much money you have to work with. If you have a long time horizon before you plan to use the money, (say, 20 years) you can choose a portfolio with a higher level of risk. These portfolios are typically comprised of stocks and other assets. You have the chance to earn a high return, but there’s also chance you could lose money if you withdraw your money while the stock market is low. 

If you plan to use the funds in less than five years, you would likely want to choose a lower risk portfolio. These portfolios typically have a high composition of assets with relatively low volatility such as bonds, mortgages, and other income focused investments. You can expect a lower return, but you probably won’t lose a lot of money. 

We recommend using an investment account over a savings account if you’re planning to keep the money invested for more than one year. 

An example of saving vs. investing

Let’s say you have $10,000 to either save or invest. You decide to put $5,000 in a high interest savings account, and $5,000 in an investment account where the funds are automatically invested into a moderate-risk portfolio.

Your high interest savings account has an interest rate of 2%. One year later, you decide you’d like to book a vacation and check the $5,000 in your savings account. Thanks to interest, your $5,000 is now $5,100.

Then you check your investment account which has an expected return of 6%. Now how about that! Your returns are exactly 6%. Your original $5,000 is now worth $5,300. Your portfolio manager must be doing something right… Things don’t always work out this neatly.

Altogether, you made $200 more investing than saving. Not bad—but also not a lot, considering you also could’ve lost that much money — or more. Maybe you’d be better off just putting all your money in a savings account where it’s guaranteed to be available for withdrawal in case you need it.

But wait. Let’s say you decide to make it a staycation and put that money towards retirement instead. You leave both accounts as they are for 30 years.

In 30 years, the balance in your bank account will be $9,057. That’s almost double what you started off with!

But here’s the kicker. Thirty years in, the money in the investment account is now worth $23,717. That’s a 374% increase. Ah! The wonders of compound growth.

When it comes to long-term saving, picking an investment account pays off—literally. However, there are differences between saving and investing that go beyond interest and returns. 

Comparisons between saving and investing

As money-making, money-saving strategies, both saving and investing have their own benefits and drawbacks. Here’s how they compare on the most important issues.


Savings accountInvestment account
VolatilityYour rate of return on a savings account rarely changes. It’s immune to market dips—but, when the market does well, you’ll be watching from the sidelines. Your return will vary according to the performance of the market, and when you choose to withdraw from your portfolio. Depending on your portfolio, you may earn more or less than your expected returns.
EarningsInterest is capped, with most savings accounts earning 0.1% – 2% a year.An investing account has the potential to earn a considerable return — an aggressive portfolio with WealthBar has returned around 8% since inception.
 InflationMost savings accounts can’t keep up with the rate of inflation. Even if your money grows with interest, by the time you withdraw it, chances are good that your money will buy you less in the future than it does today.You can pick a portfolio that’s returns are more likely to beat the rate of inflation—so your investment doesn’t lose buying power even as the cost of living goes up.
FeesMost savings accounts charge no monthly fees, but may have transaction fees.Your financial institution will charge a fee for managing your portfolio. This is typically a percentage of your portfolio’s value.

Certain investments like mutual funds and ETFs may also have costs associated with them. 

If you’re self directing trades you may be charged a commission fee to do so. 
TaxesInterest on savings is subject to regular income tax.You won’t pay taxes on investment earnings for money in a TFSA or RRSP. 

Investment returns in non-registered accounts are subject to income tax, and some types of earnings (like dividends and capital gains) can be taxed at lower rates than interest.

Should you save or invest?

Here are a few more details on why you might choose one account over the other:

Reasons to use a savings account

It’s better for you to use a savings account instead of investing if:

  • You’re planning to spend your money in a year, or sooner. Using a savings account, you take the risk of losing the money you saved off the table. Consider a high interest savings account if you’re saving for a large purchase that’s coming up relatively soon. For example, if you’re looking to buy a house in the next year and you’ve saved enough for a downpayment, you can put that money in savings to make sure it’s available when you need it.
  • You’re building an emergency fund. If you’re setting aside money to use in case of an emergency, you’re better off keeping it in a savings account, where you can access it quickly.
  • You’re just beginning to save. Maybe you’ve just reached the point where you’ve paid off most of your debt and you’re starting to save for the future. In that case, a savings account can help you practice good saving habits until you’re ready to move those funds into an investment account.
  • You’re totally uncomfortable with investment risk. You realize you’re not going to make a significant return in the long run, but you’re comfortable with that if it means you’ll never lose money. Keep in mind, you’re taking the risk that your money won’t grow at the same rate as inflation. 

Reasons to invest instead of saving

It’s better for you to invest instead of saving if:

  • You’re making long-term plans. Whether you’re saving for retirement, or for your newborn’s college tuition, investment accounts have particular benefit once you start counting time in decades. You’ll see your money grow while easily outstripping the rate of inflation.
  • You’ve already prepared an emergency fund. Once you’ve got a plan to cover you in case of an emergency—unemployment, dentist bills, eviction—you’ll have excess cash to save. It’ll do more work for you in an investment account than it will in a savings account.
  • You want to take advantage of the stock market’s growth. Once you have money in the game, the market becomes more interesting. It can be gratifying to see changes in the market and know they’re benefitting you directly. 

How much to save and how much to invest

Before you open an investing account, make sure you’ve got a plan for unexpected expenses. 

Plan to cover three months’ of expenses if you’re single, or six months’ of expenses if you have a family and are the primary income earner.

Once you’ve got a plan for unexpected expenses, you can start investing any additional savings. We suggest that you aim to invest 10% take-home pay to start. The easiest way to stay on track is to set-up automatic deposits every time you get paid.

The bottom line

If you’re putting aside money for less than a year, or you need to have quick, easy access to it, put your money in a savings account. WealthBar’s free high interest savings account offers 2% annual interest and is available to all invested clients, so you can grow your money worry-free.

But if you want your money to make you more money, consider opening an investing account. Whether you’re a risk-taker or you’re looking to play it safe, WealthBar offers professionally managed portfolios to suit your needs for less than 1/2 the fees of traditional investment products. You can start investing today.

A few minutes today could save you thousands tomorrow.
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