When planning your finances, it is important to distinguish between savings and investments. Savings are generally funds that you set aside, but can access relatively quickly. These savings are often for a specific need or purchase, like a holiday or a new car. The most common way of ‘saving’ is into a bank account (‘deposit’ account) where the money can be accessed in an emergency, and for every £1 you put in, you will get £1 back (short of a bank collapse!), and possibly some interest.

Investments are designed to be held for a longer term, usually at least 5 years. You need to be comfortable with tying up this money for a period of time, and should not consider investments unless you already have some savings in place. Most investments are not guaranteed to return your money in full, although they do offer the prospect of higher returns than deposit accounts. Returns, risk and volatility are factors that will determine a suitable place for your investments.

Savings and Investment products cover a wide range. At one end a simple current account offers a small amount of interest but facilitates regular payments and withdrawals without detriment to your savings. At the other end are company shares, where you invest money in a company, with the prospect that the company will prosper and the shares will increase in value over time. Whilst the benefits are potentially high, the risks are also much greater.

We will be able to explain risk in more detail.

The value of investments can fall as well as rise and you may get back less than you invest.