Saving vs. investing: What’s the difference and how to choose?

Saving and investing are a little bit like peanut butter and jelly. They’re each great on their own but even better together. Still, many families feel they need to pick just one. We consulted a few financial experts to get their insights on saving vs. investing, including when to choose each, how to balance them, and why a little bit of both can set your family up for long-term success.

Key differences between saving and investing

So, what exactly is the difference between saving and investing? Let’s start with some of the most significant differences.

1. Access vs. growth

According to Mike Michalowicz, author of several finance books, including kid-focused My Money Bunnies: Fun Money Management For Kids, saving is all about access. He explains, “It’s about short-term security and liquidity. Your emergency fund, upcoming expenses, and peace of mind live here.” Investing, on the other hand, is about growth. “Money works harder over time, compounding its value but with uncertainty. Investing prioritizes long-term wealth over immediate access,” he says.

2. Psychological shift

Michalowicz also points out an impactful emotional difference between the two. Saving feels “safe” because your money is always within reach. Investing feels more like “anticipation.” It’s exciting to watch your money grow (but it comes with risk, too!).

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3. Liquidity

Liquidity is a fancy term for how quickly you can get your money when you need it. Brian Quigley, founder of Beacon Lending, explains: “Savings, like in a bank account, can be accessed quickly, whereas investments, like stocks or real estate, may take time to sell.” This means savings accounts are generally the simplest way to guarantee immediate, risk-free access to cash, making it more liquid.

4. Growth potential

The downside of saving is that your money doesn't grow very fast. Quigley explains, “Money sitting in a savings account loses value over time due to rising prices, but investments have the potential to grow and outpace inflation.” In other words, savings alone might not keep up as things get more expensive over the years. Investing, especially long-term, usually offers a better chance for your family's money to grow.

5. Risk

Savings accounts are safe; you won’t lose money. But there's a catch: Inflation slowly reduces what your money can buy over time. Ethan Keller, president of Dominion, explains, “While savings are low-risk, inflation can erode purchasing power. Over decades, even ‘safe’ savings may lose value, making investing essential for long-term goals.”

Investing does involve more risk. Your account balance might go up and down. But if you diversify (spreading your investments across several types like stocks, bonds, or index funds), you can lower the risk and create steadier growth for your family’s long-term goals.

Saving vs. investing at-a-glance

The table below presents our financial experts' insights on the differences between saving and investing and when you might use each.

How to decide when to save vs. invest

Understanding when to choose saving versus investing mostly comes down to timing, goals, and comfort with risk. Let’s break it down into three categories.

Immediate needs (0–3 years): Save

If you’re planning for expenses right around the corner (vacations, unexpected car repairs, holiday spending), saving is a good option. The main goal at this stage is accessibility and safety, so your money is right there when you need it.

Mid-term goals (3–10 years): Blend both

For slightly longer-term goals (putting a down payment on a home, funding a family vacation, or covering college expenses), you might want to consider combining saving with conservative investments. A balanced strategy that mixes saving with short-term, high-yield investments may grow your money without exposing you to significant risks.

Keller echoes this idea, suggesting a straightforward guideline: "Deciding between saving and investing hinges on financial goals, time horizons, and risk tolerance. Tools like high-yield savings accounts or CDs offer low risk and quick access, though returns may not outpace inflation.”

Long-term wealth (10+ years): Invest

For goals further out on the horizon (retirement savings, college funds, or building long-term wealth), investing is powerful. Michalowicz sums this up simply and effectively: "The longer the timeline, the better investing works."

Investing tends to work better over longer timelines because of compound growth, which means your invested money may earn returns on top of returns over many years. 

A simple way to decide: Necessity vs. return test

Michalowicz suggests this straightforward test when deciding between saving and investing: “The ultimate test is if the money is needed to cover a necessity (like a new roof in 15 years), savings will ensure you have the right funds at the right time. If you want your money to work for you (I would like to retire in 15 years), then investing is likely the better choice.”

In short, saving is for certainty; investing is for growth. Understanding your goals will make choosing between them much clearer.

Teaching kids about saving and investing

It’s never too early to teach your kids smart money habits. In addition to using Greenlight’s Investing for Kids, there are other ways you can teach your kids about these topics. Our financial gurus suggest using hands-on, practical methods to make concepts of saving and investing relatable, fun, and understandable for kids of all ages. Here are some examples you can try with your kids.

Try the 3-jar method

Michalowicz recommends a kid-friendly approach known as the 3-jar method:

1. Savings jar. Short-term money your kids set aside for things they want soon, like toys or treats.

2. Investing jar. Money that grows over time, teaching patience and long-term thinking.

3. Giving jar. Money set aside to help others teaches generosity.

This method visually demonstrates that money has different purposes and helps kids understand how to balance short-term desires and long-term goals.

Make kids earn their money

Have your kids earn money by getting a job (if they’re old enough) and helping with chores around the house. When kids work for their money instead of having it automatically, they may think twice before spending it. Seeing that every dollar takes effort to earn can make it feel much more real.

Use simple analogies 

Quigley recommends using kid-friendly analogies to show the differences between the two. He explains, "Parents can teach kids that saving is for things they want soon, like a toy, while investing is for bigger things later, like college. Using a simple example, putting money in a piggy bank (saving) vs. planting a tree that grows fruit over time (investing)."

With saving vs. investing, you don’t have to pick just one. You just need to know what your financial goals are so you can decide when to use each. If you start layering your financial PB&J, you might be able to enjoy the best of both worlds!

Teach smart saving habits. From rounding up purchases to setting savings goals — Greenlight's award-winning money app helps families save. Try Greenlight, one month, risk-free.†

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