Personal Finance 101

Saving vs. Investing: Which is Right for Me?

When should you save, and when should you invest? The answer depends on what you have planned for the future – and what you want to do with your money.

First, let’s look at the most important differences between saving and investing. Then, we’ll help you figure out which is right for you.

In this article we’ll cover:

  • How a savings account works
  • How an investment account works
  • Comparisons between saving and investing
  • Reasons to use a savings account
  • Reasons to use an investing account

The differences between saving and investing

Broadly speaking, when you put your money into an investment account instead of a savings account, you can expect to earn a greater return in the long run, but with some risk. Your return depends on how your investments perform. The value of investments can go up or down.

When you put money into a savings account, it collects interest at a steady, seldom changing rate that’s set by your financial institution. You can make a predictable return, but you have the potential to earn more through investing.

How a savings account works

The money you put in your savings account earns interest.

If you want to maximize interest on the money in your savings account, you should opt for a high interest savings account (HISA) – you may get anywhere between 1% up to over 3% annual returns on your savings. Be aware that some financial institutions offer promotional rates where the interest rate advertised is higher in the first few months, but then drops considerably. Others may have restrictions on minimum balances and how often you can make withdrawals.

When you put your money into an investment account, you’re able to invest the money in a variety of assets, most commonly stocks and bonds.

All investments have a certain level of risk. If you’re new to investing, that can sound scary, but keep in mind that risk and reward go hand in hand. While the stock market sometimes experiences a dip, historically speaking, there are more positive years than negative, and markets have always recovered and posted gains once again.

The type of investments you choose will depend on your goals for the future, risk tolerance, and how much money you have to work with. If you have a long time horizon before you plan to use the money, (say, 20 years) you can choose a portfolio with a higher level of risk. These portfolios are typically comprised of stocks and other assets. You have the chance to earn a high return, but there’s also chance you could lose money if you withdraw your money while the stock market is low. 

If you plan to use the funds in less than five years, you would likely want to choose a lower risk portfolio. These portfolios typically have a high composition of assets with relatively low volatility such as bonds, mortgages, and other income-focused investments. You can expect a lower return, but you probably won’t lose a lot of money. 

We believe it can be beneficial to use an investment account over a savings account if you’re planning to keep the money invested for more than one year, you’ve got emergency savings, and you’re comfortable with some risk.

An example of saving vs. investing

Let’s say you have $10,000 to either save or invest. You decide to put $5,000 in a high interest savings account at 3%, and $5,000 in an investment account where the funds are automatically invested into a moderate-risk portfolio with an expected return of 6%.

One year later, you decide you’d like to book a vacation and check your accounts. Thanks to interest, your $5,000 in savings would now be worth $5,150.

Then you check your investment account. Now how about that! Your returns are exactly 6%. Your original $5,000 would now be worth $5,300. Your portfolio manager must be doing something right… Things don’t always work out this neatly. 

Altogether, you made $150 more through investing account than saving. Not bad – but also not a lot, considering you also could’ve lost that much money – or more. Maybe you’d be better off just putting all your money in a savings account where it’s guaranteed to be available for withdrawal in case you need it…

But wait. Let’s say you decide to make it a staycation and put that money towards retirement instead. You leave both accounts as they are for 30 years.

three stacks of coin, arranged from smallest to tallest. starting amount $5000, high interest savings account $12136, investment account $28717

Hypothetical comparison: how money grows in a High Interest Savings Account at 3% annually vs. an investment account at 6% annually over 30 years.

In 30 years, the balance in your high interest savings account would be $12,136.

But here’s the kicker. Thirty years in, the money in the investment account could now be worth $28,717. That’s a 474% increase. Ah! The wonders of compound growth.

When it comes to long-term saving, picking an investment account can pay off – literally. Keep in mind though, risk and reward go hand in hand. When you invest, there’s a chance you could also lose money.

Comparisons between saving and investing

As money-making, money-saving strategies, both saving and investing have their own benefits and drawbacks. Here’s how they compare on the most important issues.

Savings account

Investment account


Your rate of return on a savings account rarely changes. It’s generally immune to market dips, but when the market does well, you’ll be watching from the sidelines. 

Your return will vary according to the performance of the market, and when you choose to withdraw from your portfolio. Depending on your portfolio, you may earn more or less than your expected returns.


Your money is kept in cash, and it is not tied to investment risk.

Investing involves risk. The value of investments can go up or down. 


Interest is capped, with most savings accounts earning between 1% to 3% annual interest.

An investing account has the potential to earn a greater return than a savings account over the long-term


Most savings accounts can’t keep up with the rate of inflation. Even if your money grows with interest, by the time you withdraw it, chances are good that your money will buy you less in the future than it does today.

You can pick a portfolio that’s potential returns are more likely to beat the rate of inflation – so your investment doesn’t lose buying power even as the cost of living goes up.


Most savings accounts charge no monthly fees, but may have transaction fees.

Your financial institution will charge a fee for managing your portfolio. This is typically a percentage of your portfolio’s value.

Certain investments like mutual funds and ETFs may also have costs associated with them.

If you’re self directing trades, you may be charged a commission fee to do so.


Interest on savings is subject to regular income tax.

You won’t pay taxes on investment earnings for money in a TFSA, while taxes in an RRSP are deferred until withdrawal.

Investment returns in non-registered accounts are subject to income tax and some types of earnings (like dividends and capital gains) can be taxed at lower rates than interest.

Should you save or invest?

Here are a few more details on why you might choose one account over the other:

Reasons to use a savings account

It’s better for you to use a savings account instead of investing if:

  • You’re building an emergency fund. Since the pandemic began, many Canadians lost their jobs or have been bringing in less income due to COVID-19 business restrictions, a diagnosis, or a number of other reasons. This underlies the fact that everyone should have an emergency fund that they can access quickly for these types of unexpected needs – and the place to store it is in a savings account.
  • You’re planning to spend your money in a year, or sooner. Using a savings account, you take the risk of losing the money you saved off the table. Consider a high interest savings account if you’re saving for a large purchase that’s coming up relatively soon. For example, if you’re looking to buy a house in the next year and you’ve saved enough for a down payment, you can put that money in savings to make sure it’s available when you need it.
  • You’re just beginning to save. Maybe you’ve just reached the point where you’ve paid off most of your debt and you’re starting to save for the future. In that case, a savings account can help you practice good saving habits until you’re ready to move those funds into an investment account.
  • You’re totally uncomfortable with investment risk. You realize you’re not going to make a significant return in the long run, but you’re comfortable with that if it means you’ll never lose money. Keep in mind, you’re taking the risk that your money won’t grow at the same rate as inflation. 

Reasons to invest instead of save

It’s better for you to invest instead of save if:

  • You have extra cash. If you are one of the many Canadians whose expenses dropped during the pandemic because you weren’t traveling, going out, or buying as many clothes, you probably have a cushion of money set aside. That money can better help you reach your long-term goals if you invest it.
  • You’re making long-term plans. Whether you’re saving for retirement, or for your newborn’s college tuition, investing can be particularly beneficial once you start counting time in decades. You’ll see your money grow while easily outstripping the rate of inflation.
  • You’ve already prepared an emergency fund. Once you’ve got a plan to cover you in case of an emergency – unemployment, dentist bills, eviction – you’ll have excess cash to save. It has the potential to do more work for you in an investment account than it will in a savings account.
  • You want to take advantage of the stock market’s growth. Once you have money in the game, the market becomes more interesting. It can be gratifying to see changes in the market and know they’re benefitting you directly.

How much to save and how much to invest

Before you open an investing account, make sure you’ve got a plan for when you may have unexpected expenses or income losses.

Plan to cover three months’ of expenses if you’re single, or six months’ of expenses if you have a family and are the primary income earner.

Once you’ve got this covered, you can start investing any additional savings. We suggest that you aim to invest 10% take-home pay to start. The easiest way to stay on track is to set-up automatic deposits every time you get paid.

The bottom line

If COVID-19 ate through your emergency account, or if it helped you realize you need to create one, we typically suggest putting your money in a savings account, like our High Interest Savings Account.

And if you have money sitting on the sidelines, consider opening an investing account, like one of the CI Direct Investing ETF Portfolios.