Saving or investing, what is smarter for your money?

It is a question many people struggle with: saving or investing? Saving feels safe, investing feels exciting. But what ultimately yields more? And when do you choose which? The figures provide a clear picture.

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What does saving yield?

Savings rates in the Netherlands were near zero for years. They have since risen slightly, but structurally, the interest rate usually remains below inflation. And therein lies the problem. If inflation is higher than your interest rate, your money loses purchasing power.

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An example: with 3 per cent annual inflation, the purchasing power of your savings halves in about 24 years. Your balance might grow a little, but you can buy less and less with it. Saving feels safe, but it slowly makes you poorer.

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What does investing yield?

Historically, the global stock market yields an average gross return of about 7 per cent per year. After inflation, about 4 to 5 per cent real return remains. A world of difference compared to saving.

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A calculation makes this concrete. Suppose you set aside 10,000 euros for 30 years. At a 1 per cent savings rate, this grows to about 13,500 euros. At a 7 per cent investment return, it grows to around 76,000 euros. The difference is tens of thousands of euros, purely due to return and time.

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But isn’t investing risky?

Yes, in the short term it is. In a single year, the market can fluctuate significantly. But the longer your horizon, the smaller the risk. With a horizon of 10 years, the chance of a positive return is already high based on history. At 20 years or longer, globally diversified investing has been profitable in the vast majority of historical periods.

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Time is the most important risk mitigator in investing. The biggest risk is not in the market, but in your own behaviour. Research shows that private investors achieve an average of 2 to 4 percentage points less return per year than the market. The cause? Panic selling, entering the market too late, and emotional decisions.

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When to save, when to invest?

Saving makes sense for money you need in the short term. Think of an emergency buffer of three to six months of fixed costs, or money for an expense within one to three years. Saving provides certainty and peace of mind.

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Investing makes sense for money you can do without for ten years or longer. For retirement, wealth building, or financial independence. The best strategy for most people? Save a buffer and invest the rest for the long term (which, by the way, you can also build up simultaneously).

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What about taxes?

In the Netherlands, both savings and investments fall into box 3. You pay tax on a fictitious return, regardless of what you actually earn. The exemption is approximately 57,000 euros per person or 114,000 euros for tax partners. You only pay wealth tax above that amount.

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If you want to stay below this limit, you can always contribute to your pension (this works within and outside your annual margin). There, the assets achieve tax-free returns.

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Smart start to investing

At Vive, you can easily start with managed investing. No minimum deposit, low costs, and a strategy that fits your goal. You choose your amount and frequency, and the rest happens automatically. Broadly diversified in index funds, with a personal approach that moves with your horizon.

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Want to start investing for a specific goal? View the options for goal-based investing or read more about pension investing if you want to build up for the long term.

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