Saving and investing are not the same thing — though people sometimes use those words interchangeably. Knowing the difference, and when to choose each, can help you reach your financial objectives. In the end, a mix of both may be the optimal strategy.

1. Define your goals

When you are saving, you are concerned primarily with securing your money, while not losing any of its value. Typically, savings are earmarked for an emergency or a short-term goal. While saving money may preserve your money’s nominal value, opportunities to grow your money are limited.

When you're investing, you give your assets the potential to grow over time. You should be prepared to accept more risk with investment money than you are with your savings. With the opportunity for growing your money comes the risk that your account value may decrease. If you have many years before you need the money to reach a goal, such as your child's college education or your retirement, you may have time to recover from decreases in value.

2. Find the best place to save

When you save, you may want to consider a low-risk place to put your money with convenient access. Depending on your choice, you might earn interest or you might not. 

Here are potential choices you may want to consider for your savings:

  • Savings accounts
  • Money market accounts
  • Certificates of deposit (CDs)

3. Explore investment options

When you invest, you are buying an asset that you expect to grow in value. Since the value may fluctuate, it’s best to invest money that you probably won’t need in the near future. You may want to be able to sell when the market conditions are favorable, not on short notice.

You have a variety of investment choices, including:

  • Individual securities — such as stocks and bonds
  • Mutual funds and exchange-traded funds (ETFs)
  • Real estate
  • Nontraditional investments — such as precious metals

Find investments that fit your goals, time horizon, and risk profile. If the investments you choose make you nervous or uncertain about your future, you may be in an investment profile that’s too aggressive for your risk tolerance.

Getting the most from your money means understanding the difference between saving and investing — and how to use both. Savings products may provide greater safety and convenience compared to investing. Depending on the investment, investing may provide better returns, though with greater risk than savings and more limited access to funds. Understanding the balance between savings and investing can help you achieve your short- and longer-term goals.

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