Saving is notoriously hard for most of us, even once we understand that it’s a good habit to have for our future financial security. We have a blog explaining how you can take control, and start saving right now to meet your future goals – whether you’re planning for a house, a car, a dream holiday, your own business or a comfortable retirement.

It’s difficult to define the difference between ‘saving’ and ‘investing’, because there is no clear-cut dividing line. ‘Saving’ could refer to everything from keeping your money under the proverbial mattress to ‘saving for retirement’, which is a regular investment for 30 years or more. The difference has more to do with your attitude towards how you want that money to grow.

If you have a savings account so you’ll always have money on hand in an emergency, for instance, you’re not too worried about the interest you’re earning. As long as it grows at the same rate as inflation, your money retains its value. But when you invest your savings, you want them to grow at a significantly higher rate than inflation, so your investment increases in value. An investment account is a good way to help you become a more disciplined saver and to achieve much better returns.

What is investment?

Investment involves putting a certain amount of money away for a specified time – either as a lump sum, or in regular monthly payments. Investments in money market accounts, stocks, property or special savings generally pay better interest rates than a savings account that you can access immediately, to begin with.

But because these investments keep your money growing for longer, you also benefit from the power of compound interest. If the interest that your money earns every month is added to your invested capital, you then start to earn interest on that interest – the longer you keep the compound interest cycle going, the faster your money grows.

Some types of investments

With all the options out there, it might be intimidating to get started when you don’t know much about it or know what would work best for you. There are many different ways to invest. Although not all of them require knowledge of the stock market and yields, it’s always a good idea to discuss the options available with a qualified financial adviser first.

Here is a short list of some investment options that an expert can help you explore:

Short-term investment accounts

• 32 Day Notice An account where you can withdraw your money after giving the bank 32 days’ notice. This means you can’t spend your savings on an impulse: if you’re going to withdraw from this account, it has to be for a purchase important enough to plan more than a month ahead. This helps you keep your investment untouched for longer, increasing the interest you earn. You can choose to have your interest paid out monthly, but the other option – adding it to the amount already invested – brings compound interest into play, and grows your investment faster.
  
• Market-linked An account that invests your money in the stock market and helps you to mitigate risk as the market changes.
  
• 24-hour notice An account where you can withdraw the funds after a 24-hour notice period. As with a 32-day notice account, this added admin step gives you pause, while you consider whether you really need to withdraw money and slow down your investment’s growth. The shorter notice period, however, means you won’t get returns as high as you do on investments that lock your money up for longer. 

Remember, if you invest in any Nedbank notice account, you can also join the Structured Saver rewards programme to help you manage your savings and investments more effectively. 

But most short-term investments are more hedges against inflation than the path to serious growth. Serious investment needs medium- and long-term strategies.

Medium-term investment accounts

• Fixed-deposit account An account in which you invest a once-off deposit for a fixed period of time.
  
• Unit trust This is a collective investment account where small investors can pool their money to be invested, with each investor owning a certain number of units in the trust. The trust aims to grow the value of these units through investments in products that can be intimidating to tackle as a solo investor: shares, bonds and property, for example.

Long-term investment accounts

• Retirement annuity An investment account to save for retirement that cannot be withdrawn before its maturity date.
  
• Property investment A long-term investment in a property or house.
  
• Held to maturity investment An investment account in which you decide upfront when you want the money to be paid out at a later date.

How do you get started?

To start your investment journey, you first need to decide what you want to achieve with your investments. A financial adviser – like those available to Nedbank Private Wealth clients – can help you define your investment goals, the products best suited to help you achieve those goals, how much you should be investing in them, and for how long.

The important lesson about investment is to start now – true wealth creation needs investment over the long term. The sooner you start putting away some money, the better your future financial well-being.