Save or invest? Why interest rates and market performance are important

October 2021

Save or invest? Why interest rates and market performance are important

Invest or save – what is the best option for you? A question that comes up often when we talk to our clients. There is no one-size-fits-all approach, and the answer will depend on your circumstances, future plans and where you are in your financial journey. What we can say with some confidence is that there are two things to consider when mulling this over: interest rates and market performance. This month, we explore how these two elements should factor into your decision to invest or save. For a full financial assessment and personalised advice, please get in touch with us at

Should you invest or save: what are the key differences?

While the two are not mutually exclusive, there are pros and cons to each. Your financial needs and goals will also be an important consideration. It is also worth keeping in mind that spreading your money across a variety of options is a smart move. With all that in mind, why are interest rates and market performance so important?

Savings accounts

Putting your money into a savings account offers a couple of benefits.

First, depending on your chosen account type, you have easier access to your money in times of need. Second, it is the safer option. You will not lose your money; remember that the Financial Services Compensation Scheme guarantees up to £85,000 held in any single institution. This is doubled to £170,000 for joint accounts.

However, with this level of security comes little risk, and with minimal risk there is not much reward. While ISAs offer tax-free savings and therefore a marginally better interest rate, the reality is that you will not grow your money in this way.  

The role of inflation

The reason for this comes down to the rate of inflation. In August 2021, the rate of inflation was 3.2%, while the annual rate for 2020 was 0.9% and for 2019 it was 1.8%. With a Bank of England interest rate of 0.1%, banks and building societies will keep their interest rates low, and in many cases at zero.

If your savings do not grow at a rate that is higher than that of inflation, then you are not growing your money. It really is as simple as that. Even long-term savings accounts and ISAs, which typically offer higher interest rates, will likely struggle to keep up with inflation under current conditions.  

Market performance

Growing your money is about taking a longer-term view. Money markets ebb and flow, rise and fall; occasionally they rise exponentially, and once in a while they crash spectacularly. However, over time, they move in an upward trajectory. This is why the advice is to start investing as early as possible, whether into a pension or by trading on the stock market.

Where a lack of risk leads to minimal growth for savings, so any investment in the stock market can lead to significant growth but comes with an element of risk. Unless you are an experienced investor, it is always prudent to work with an independent financial adviser before making any decisions on where and how to invest your money. They will want to know what your appetite for risk is to determine the best approach to take. That risk is what weathers the marketplace storms and sets you up for growth over the medium to long term.

Market growth, unlike savings with financial institutions, is often in double figures. So when we consider how inflation can reduce the value of your money in the short term, the percentage change is small compared to that of market growth. Therefore, your money is more likely to grow over time.    

So should you invest or save?

As with anything in life, it will depend. It depends on your circumstances, on your short-, medium- and long-term goals, and on your attitude to risk. For most, a mix of savings and investments will spread risk and meet short-term and longer-term objectives. Key points to keep in mind are how interest rates compare to inflation and how the market has been performing in terms of growth against inflation.

When it comes to financial decisions, seeking advice from an independent financial adviser will offer much more tailored advice. They will consider your individual circumstances and offer solutions that will help you meet your financial goals. At Plutus Wealth we can help you invest, save and grow your money. Contact us on 020 7871 5200 or at and we can help with the next steps.


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