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Why are we encouraged to save money? Even from being a small child we put away money to save for the future, perhaps for something special, or perhaps to be sure that, when we really need something, we have the funds to acquire it, without taking on debt. Whether you place your money in a piggy bank, or in a multinational investment house, our aims are broadly the same; to provide for our future needs, and to protect ourselves against unexpected causes of expenditure.
When planning your finances, it is important to distinguish the difference between savings or investment. Savings are generally funds that you set aside, but can get to relatively quickly. These savings are often for a specific need or purchase, like a holiday or a new car. The most common way of ‘saving’ is into a bank or building society account (‘deposit’ account) where the money can be accessed in an emergency, and for every £1 you put in, you will get £1 back (short of a bank collapse!), and probably some interest.
Savings products range from a simple current account, which allows a small amount of interest, but facilitates regular payments and withdrawals without detriment to your savings. At the opposite end of the scale would be company shares, where you invest money in a company, with the prospect that the company will prosper and the shares will increase in value over time, probably using a tax efficient ISA. Whilst the benefits are potentially higher, the risks are also much greater.
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