Savings vs Investment | What are the long term effects?

Understanding the difference between savings and investments is important. Savings in banks or building society accounts won’t fall in value but will be impacted by inflation over the longer term. On the other hand, if you invest in real assets, such as shares, you can lose money, but in return there is potential for the value to grow and outstrip inflation, giving a positive return in real terms.

All investments carry some risk, however small or large that may be. Our advice is to strike a balance. Firstly, make sure you have enough to provide you with security in case of emergencies; a pot of money for enjoyment; and then think about the future and how best to make your money work harder and provide the potential for better returns.

It’s now over a decade since the last financial crisis when investments took a major hit.  However, over the course of time markets have recovered.  

Conversely, typically safe investments (for example savings accounts, fixed term deposits and cash ISAs) would have provided protection against the falls experienced in 2008/2009.  However, back in 2008 the Bank of England (BOE) base rate was 5.25% and by the following January it had fallen to 1.50% and has never recovered.  The current base rate is now 0.75%.

With inflation currently standing at 1.9% (Office of National Statistics, June 2019) this means that inflation will have eroded the purchasing power of bank savings.

This is demonstrated in the chart below where we have looked at the BOE rate against inflation (the Retail Price Index from 2007 to present day) and the benchmark for a Low to Medium Risk investment. 

As you can see, even with the market crash an “investment” would have generated a better return over time. 

Please note that when investing, your capital is at risk and is not guaranteed. The past performance shown in the chart is based on the actual performance of the indices shown over a 12-year period. Please also remember that past performance is not a reliable indicator of future performance.

For those who have a fear of investment, we believe in diversifying and ensuring you have an element of your portfolio in cash, with an appropriate allocation to longer term investments. Our approach is to ensure we review your objectives and long-term goals regularly and consider that over longer periods of time, there will be ups and downs in investment markets.

Our ongoing advice and support is always available and we are happy to work with you to manage your expectations and to help you achieve your longer term goals in a carefully planned manner.


Get in touch

Jim Wilson
Managing Director

Ricky Clark
Financial Planning Consultant

Jonathan McDowall
Financial Planning Consultant

David Legge
Senior Consultant


Henderson Loggie Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority.