Planting Dollars

Savings accounts and investments in shares are two very different financial products and to compare them and choose the option which is best for you, you need to first be clear about what you need from your finances. A savings account does not need to replace investments in shares, nor should your investments in shares be your only savings; instead use these simple comparisons to help you choose the best way to secure and grow your savings.

Benefits of a Savings Account

A savings account is an easy and safe way to invest your money and because you have worked hard to accumulate your savings balance, and if you want to be sure your money will only ever go up, then a savings account may be the better option for you.

Features of a savings account which may better suit you:

• You can make regular deposits. A high interest savings account is not a fixed investment but is a flexible bank account where you can add to your savings balance monthly, weekly or daily – you can even set up an automatic transfer. The real benefit of this savings account feature is the fact that interest is calculated daily and so each day your balance increases, so too does your compounding interest.
• The account is easy to use for anyone of any age. You don’t need any specialist financial knowledge or experience to open and use a high interest savings account. Instead you simply fill in your personal details in an online form, deposit an opening balance if you have one and start an automatic payment schedule to grow your funds. The bank or financial institution which holds the account manages the interest and compounding interest calculations independently of you, so you can get on with the rest of your life.
• Your money is accessible if you need it. a high interest savings account is after all a bank account and so just as you can transfer money in whenever you choose, you can also transfer your funds out if you need to cover an emergency expense, or if you have reached a particular savings goal, achieved a savings plan early, or readjusted your savings targets.

Benefits of Shares

Shares may have a reputation for being high risk and high pressure investments, with images of frantic trading floors and manic cries to buy or sell. However, shares do not have to be all risk because if you know to manage and invest in the share market you can also get high returns on a savings investment by buying shares.

Why buying shares might suit your savings plans:

• You can make much higher returns. If you know where to invest and the right time to buy or sell your savings investments, buying shares can make you high returns on your investment. These returns can be much higher than the five or six per cent you would be earning in a savings account, plus you often need a higher minimum amount to buy shares and so the more you invest, the more you have to make gains with.
• Your returns are in line with inflation. If you are looking at long term savings options, the interest rate you earn on a savings account may not be enough to out run the increases in inflation over time. However, when you examine the performance of the share market you see a steady rise over a long term investment which means that if you are investing your savings for the long term, you will be more likely to see your investment increase to match or beat the inflation rate.
• You are involved and in control. If you want to be in total control of your savings investments and be able to move on opportunities or changes in the financial market then buying shares is a better option for you. You can choose when and where to invest and decide when you think it is the right time to buy or sell, plus if you love keeping up with all the financial gossip you can stay informed and move on the tips you hear to take advantage of the next big thing before anyone else.

When a Savings Account is Better Than Buying Shares

A savings account is not necessarily and not always better than buying shares because the choice depends on your own financial goals and knowledge. However, a high interest savings account is better than shares when:

• You are just beginning a savings plan. If you are yet to solidify your savings goals or if you are just looking for a way to keep your savings safe and growing while you decide on your preferred savings investment strategy – whether that be buying shares, investing in a term deposit or finding out more about the money market – depositing and growing your savings in a high interest savings account is a better option than making a foray into the share market when you’re still unsure.
• You don’t have the time or inclination to manage your investments. Managing your basic day to day finances can be quite time consuming and if you don’t want to be more involved or you’re just not investment-minded then a savings account is better for you. your funds will grow without you having to make decisions on buying or selling and you know that your savings will be safe because at the end of the day they are deposited in a secure bank account.

Fred is a personal finance writer at Credit Card Finder. He helps people to compare and choose balance transfer credit cards

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