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Saving and investing

Save or invest? Invest or save? It's easy to end up going around in circles when trying to decide on the best way to grow your money.

Working out what's best for you can be a challenge, and as a Jersey, Guernsey or Isle of Man resident there are a range of different options available. If you're trying to decide the best way to grow and protect your wealth, this guide can help you work out what's right for your needs – spoiler alert – it's often a combination of both saving and investing.

For short term goals, a savings account remains the best way to maintain access to your cash. You can add to your savings in one-off or regular payments. And if you use an easy-access account, you can get back what you put in – plus the interest you've earned – whenever you want it.

Why save?

Setting aside some of your money for the future is key to achieving your goals, be it a once-in-a-lifetime trip, or luxury car, saving is often the best way to achieve them.

You can add to your savings in one-off or regular payments. And if you use an easy-access account, you can get back what you put in – plus the interest you've earned – whenever you want it. And with a range of savings accounts available in the islands, it’s well worth finding out what offers the best interest rates for cash you’re getting ready to splash.

Aside from accessibility, perhaps the biggest benefit of having a savings account is that it's safe. Each island in the Channel Islands and Isle of Man has its own depositor compensation scheme which offers protection for eligible deposits, up to set limits.

HSBC in the Channel Islands and Isle of Man participates in these schemes in each island:

Jersey

HSBC Bank plc, Jersey Branch, is a participant in the Jersey Bank Depositor Compensation Scheme. The scheme offers protection for eligible deposits of up to £50,000. The maximum total amount of compensation is capped at £100,000,000 in any 5-year period. Full details of the scheme and banking groups covered are available on the States of Jersey website.

Guernsey

HSBC Bank plc, Guernsey Branch, is a participant in the Guernsey Banking Deposit Compensation Scheme. The scheme offers protection for 'qualifying deposits' up to £50,000, subject to certain limitations. The maximum total amount of compensation is capped at £100,000,000 in any 5-year period. Full details are available on the Scheme's website.

Isle of Man

HSBC Bank plc in the Isle of Man is a participant in the Isle of Man Depositors’ Compensation Scheme as set out in the Depositors’ Compensation Scheme Regulations 2010. 

So, is saving risk-free? Not exactly. Interest rates are at historic lows, so the return you'll get on your money will be modest. The risk is it won't beat inflation. So while the money in your savings account isn't going anywhere, its purchasing power is getting eroded over time. In other words, it will buy you less.

Make saving automatic

Forgetting to put money away each month is often the reason people don’t save. If you take the need to remember out of the equation, you could reach your goals much quicker.

Whichever type of account you use to save your money, make it automatic. Set up a standing order or a Direct Debit and have it come out of your current account and into your savings account on pay day. That way, you can set it and forget it, knowing your saving habit will take care of itself.

With investing, the process can work in exactly the same way. A fixed amount could be invested on a monthly basis for example, which may smooth out any short term volatility in markets. This approach is known as pound-cost averaging. It's important to remember that time in the market is more dependable than trying to time the market, so look to invest over the longer term.

Keep your emergency savings separate

One of the first measures of being financially fit is having an emergency fund. The idea is to have between 3 and 6 months’ worth of living costs within easy reach, to cover any unexpected expenses.

As it's hard to predict if and when you’ll need this money, emergencies should always be the first thing you save for. Make sure the money’s kept in an instant-access account so you can get to it if you need to. And avoid the temptation to dip into it for non-emergencies – like a holiday, for example. The money you save now could be used towards funding an even bigger or more permanent move later on.

Define when you want to access your money

Once you've got your emergency fund, take your savings habit to the next level by working out exactly what else you're saving for, whether that’s saving for a deposit on a property, or a holiday abroad. Whatever your goal, be mindful of when you think you'll want to spend the money.

If you're planning to achieve your goal within five years, be it putting down a deposit, or covering the cost of relocating, it makes sense to keep your money in a savings account. If you were to invest it, you could potentially suffer short-term losses and not have cash available when you need it.

Bear in mind, not all savings accounts are the same. With a fixed rate account or a regular savings account you may be able to earn a slightly higher interest rate in return for locking your money away for a fixed period of time.

Why invest?

Like saving, investing also allows you to set aside money for the future, with the potential to outperform interest rates. 

There are many different ways to invest, and they usually involve some sort of charges or fees. Perhaps the most well-known are shares – where you buy a tiny slice of an individual company, and funds – where you buy into a ready-made basket of investments that are managed for you by an expert. 

With investing, you're putting your money into something you believe will go up in value over time. This means you're exposed to a different type of risk – exposure to the markets. This means the value of your investment can and will jump around. Your expected returns can also fluctuate and are not guaranteed, and you could get back less than you put in.  

That’s why you should aim to invest for 5 years or more. A longer time frame gives your investment more time to recover if it falls in value. By planning when you'll want access to your money, you can manage the risk that you take.

Invest towards long-term goals

If you've got an adequate emergency fund in place, you might consider switching some of your monthly savings contributions into an investment fund.

Investing should always be seen as a long-term strategy of 5 years or more. The longer you invest for, the longer your pot will have to recover from any market falls. Over the long term, investing offers the potential to earn better returns than saving. But it's important to remember there are no guarantees – your money can go down as well as up in value, so you could get back less than you invest. 

Why take any risk? Well, for a start, not all investment risk is equal. And the benefit of taking a calculated amount of risk is it gives you the potential to make more money than you would from a saving account.

Which comes out top - saving or investing?

It's really a question of which combination is right for you. The chances are you've got more than one goal you'd like to put your money towards. The golden rule is to save for what's around the corner and invest for the future. Sort your financial goals into short term and long term aspirations to help you decide the best way to manage your money.

Set Title

Short term goals (Less than 5 years) Medium term goals (5 to 10 years)

Long term goals

(10 years or more)

For money you'll need within the next 5 years, such as a deposit on a house or a holiday, saving makes sense because if you invest for under 5 years, your investment may not have enough time to make up any fall in value. If you're planning to put money away for 5-10 years, to pay for a child's wedding, perhaps, or take the trip of a lifetime, or to buy a property in the longer term – such as when you return back home – saving could make still sense, although if you're prepared to take some risk, investing could earn you a greater return on your money. For money you're not going to need for 10 years or more, such as your retirement, taking a degree of investment risk could earn you a greater return – compared with savings, whose value gets eroded by inflation over time.

Set Title

Short term goals (Less than 5 years) For money you'll need within the next 5 years, such as a deposit on a house or a holiday, saving makes sense because if you invest for under 5 years, your investment may not have enough time to make up any fall in value. For money you'll need within the next 5 years, such as a deposit on a house or a holiday, saving makes sense because if you invest for under 5 years, your investment may not have enough time to make up any fall in value.
Medium term goals (5 to 10 years) If you're planning to put money away for 5-10 years, to pay for a child's wedding, perhaps, or take the trip of a lifetime, or to buy a property in the longer term – such as when you return back home – saving could make still sense, although if you're prepared to take some risk, investing could earn you a greater return on your money. If you're planning to put money away for 5-10 years, to pay for a child's wedding, perhaps, or take the trip of a lifetime, or to buy a property in the longer term – such as when you return back home – saving could make still sense, although if you're prepared to take some risk, investing could earn you a greater return on your money.

Long term goals

(10 years or more)

For money you're not going to need for 10 years or more, such as your retirement, taking a degree of investment risk could earn you a greater return – compared with savings, whose value gets eroded by inflation over time. For money you're not going to need for 10 years or more, such as your retirement, taking a degree of investment risk could earn you a greater return – compared with savings, whose value gets eroded by inflation over time.

Managing your savings and investments with HSBC

We've got plenty of options for managing your wealth, whether you're a seasoned investor or a total first-timer.

Learn more about financial planning in our guide

Explore our range of savings accounts

Find out more about our range of investment funds

Disclaimer

HSBC Bank plc, Jersey Branch has prepared this article based on publicly available information at the time of preparation from sources it believes to be reliable but it has not independently verified such information.

HSBC Bank plc, acting through its registered branches in Jersey, Guernsey and the Isle of Man and the HSBC Group are not responsible for any loss, damage, liabilities or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use of or reliance on this article.  The contents of this article are subject to change without notice. HSBC Bank plc, acting through its abovementioned branches, and the HSBC Group give no guarantee, representation or warranty as to the accuracy, timeliness or completeness of this article.

This article is not investment advice or a recommendation nor is it intended to sell investments or services or solicit purchases or subscriptions for them. This article should not be used as the basis for any decision on taxation, estate, trusts or legacy planning. You should not use or rely on this article in making any investment decision. HSBC Bank plc, Jersey Branch, Guernsey branch, Isle of Man branch and the HSBC Group are not responsible for such use or reliance by you.

Any market information shown refers to the past and should not be seen as an indication of future market performance.

You should always consider seeking professional advice when thinking about undertaking any form of prime residential or commercial property purchase, sale or rental.

You should consult your professional advisor in your jurisdiction if you have any questions regarding the contents of this article.

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