Saving vs. investing: What should you be doing right now?

Photo by Towfiqu barbhuiya / Unsplash

If you have any financial goals, then there’s no doubt that you’ll have to utilize either saving or investing to attain them.

They are both very critical aspects of personal finance because they help you to accumulate money, which can be instrumental in a couple of ways:

  • You can mitigate most financial emergencies since you have access to funds that you can readily tap into.
  • You can engage in other money-making opportunities that lead to more financial growth since you have funds available.

Most people, however, use saving and investing interchangeably yet they are very different. This article will highlight these differences, explore how each works, and answer the question: Should I be saving or investing right now?

Let’s get started.

What’s the difference between saving and investing?

Saving refers to setting some money aside for a future need or expense. It represents the part of your income that you hold back from spending in order to accumulate enough for a specific use.

This could be for an emergency, a near-term goal, or even an expensive purchase.

Investing, on the other hand, involves using your money to buy assets that you believe will be worth more in the future. The objective here is to earn a return or profit. Typical investments include stocks, bonds, and mutual funds.

So while saving is simply about accumulating a specific amount for future use, investing focuses on getting a return. The big difference is that saving emphasizes safety while investing involves risk.





Accumulate money

To make a profit


Very low to none

You might lose capital


Savings earn a lower interest than investments

Higher potential returns over the long term

Time Horizon

Short-term, smaller goals

Long-term, bigger goals


Easy to access your cash on short notice

It might take longer to sell assets and get cash


No costs or very low service charges

Depends on brokerage fees and taxes charged on profits made

When should you save?

Saving is the first logical step to getting your finances in order. This is because it helps you to accumulate the essential emergency fund, which is a cornerstone of any sound financial plan.

Think of it like this: If you have ready cash of your own, you won’t have to borrow expensive loans when the inevitable emergency strikes. Not only that, you’ll also have ready funds that you can use whenever a big expense becomes necessary.

Saving, therefore, helps to build a financial cushion that ensures you stay on course with your goals by avoiding common pitfalls like debt.

You should focus on saving if:

  • You don’t have an emergency fund - saving will help you build up a cash reserve specifically for unforeseen circumstances that might pop up. These might include health emergencies, job loss, or even unexpected house repairs.
  • You’ll need the money in the short term - aside from emergencies, you might need ready cash for your near-term plans or projects. If you plan to spend the money in the next 1-2 years, then saving is the ideal way to accumulate it.
  • You have high-interest debt - the point here is to focus on clearing such debts before you can jump into investing. It’s better to pay these off before you venture into buying risky assets.

How to pick a good savings account

The most common savings options in Kenya include SACCOs, money market accounts, and fixed-deposit accounts. The question is: how do you decide which of these options is ideal for you? Consider the following factors before settling on a choice:

  • Interest rate - ask yourself: How much will my money yield annually? This is arguably the most important factor. The best savings accounts in Kenya offer as much as 12% interest. Compare all your preferred options and pick the best.
  • Safety of savings - You need to have complete confidence and assurance that your money will be available whenever you want it. To make sure of this, confirm that your preferred choice is licensed and regulated by the relevant governing body like the Central Bank or the Capital Markets Authority.
  • Fees charged - some institutions charge monthly fees, others do it annually, and some charge no fees at all. Ideally, you should find an option that charges very little relative to the value of services and benefits you receive.
  • Extra features - this includes things like accessibility, online statements, mobile and web apps, etc. This factor isn’t as important as the other three but it can be the difference between a convenient and a frustrating experience when it comes to things like withdrawal charges, banking procedures, and account access.

Pros and Cons of Saving

Saving carries the following advantages over investing:

  1. The money is safe since the banking institution is regulated by a governing body like the CBK or CMA.
  2. Savings are liquid so you can have immediate access to your cash whenever the need arises.
  3. Savings aid in building an emergency fund, which keeps you prepared for urgent but unexpected financial situations.
  4. Saving is a simple concept that’s straightforward to execute.

The drawbacks of saving include:

  1. Low returns - Compared to investing, saving yields lower profits over time.
  2. Because of the low returns, the value of your money may be eroded by inflation.

When should you invest?

Investing is ideal when it’s employed to attain long-term goals. It’s considered riskier than saving because it involves buying assets whose values fluctuate up and down, although this is also why it’s lucrative.

Take stocks, for example. If you buy shares in a company, say Safaricom, you obtain partial ownership and so you benefit from its growth and profits. If the company were to go bankrupt, however, your shares would also become worthless.

Such are the risks of investments. They can be greatly rewarding in the future, but they also involve some level of risk in the short term. Some common ways of earning through investments include:

You should start investing when:

  1. You have a fully funded emergency fund - this provides you with ready cash to handle critical financial situations. Having one ensures you don’t interrupt your investments prematurely before the profits start coming in.
  2. You don’t have any high-interest debts - it’s always wise to pay off any expensive debts before investing. This is because it doesn’t make sense to pay 10% interest on a 50,000 loan while making the same 10% on your investments. You might lose your capital in the risky investment when it could’ve been better spent on clearing your debt.

Suggested: How to invest money in Kenya - A Beginner's Guide

Pros and Cons of Investing

Investing your cash comes with the following benefits over saving:

  1. You earn much better returns than those offered in savings accounts - Over the long term, investments yield higher returns that are well over the inflation rate, which is not the case with savings accounts.
  2. They are ideal for long-term goals since they take time to grow and start producing modest returns.
  3. Their risks can be reduced through diversification. This is whereby investors buy a variety of assets to protect themselves in case some investments make losses.

The cons of investing include:

  1. The assets are prone to loss - investments may lose their value since returns are not guaranteed. Some assets could perform poorly than expected, resulting in loss of capital or subpar returns.
  2. They require long-term commitment, which may restrict your access to your funds as you let them grow into meaningful investments.
  3. Compared to saving, investing costs can be high especially if you consider brokerage fees in addition to the taxes you’re required to pay on your earnings.
  4. Investing is also complex since it involves research and analysis which might take time and require some skill to do well.

Key Takeaway: Should you save or invest right now?

As we’ve seen, saving is the logical first step because it reinforces your finances. Investing is also important because it helps to build wealth over the long term. Whichever you choose to do will be determined by your financial circumstances.

Here are a few questions that can help you decide:

  • Do you have an emergency fund in place? The necessity of an emergency fund cannot be overstated. In case anything comes up, having one ensures you don’t wind up selling your investments at the worst possible time.
  • Are you committed to leaving the money for at least 3 years or longer? The longer you stay invested in an asset, the better the outcome will be. So if you are going to do it, adopt at least a medium to long-term horizon. That means from 3 years or more.
  • Can you tolerate risk? Can you stomach the possibility of losing your money? If you will need the money in the short term, you’re better off saving. Investments like the stock market can get very volatile, leading to a loss of value which may be impossible to recover from before your need arrives.

If your answer to any of these questions is ‘No’ then you should focus on saving. Concentrate on building up a strong financial safety net before you take on the risks that come with investing.