The best way to store savings is a debate where everyone seems to have a different opinion.
Investing money into high-interest building society bonds is a popular way to build interest on savings yet many prefer to invest in shares via the stock exchange.
Which of these two extremely popular yet massively different options is best for you is highly dependent on what you want to achieve from your savings.
This article explains the difference between the two.
Bonds
A bond is a loan made by investors to corporations or government entities. These corporations lay out the length of the loan and the interest rate they are willing to pay before any investment is made. The value of these bonds to the investor are subject to fluctuations but these are almost always extremely tame.
For this reason, bonds are traded far less than stocks. Most run the course designated in the original agreement between the two bodies meaning that they involve far less maintenance than investments in stocks.
Bonds are an extremely low risk investment. Because bond holders are preferential creditors they are more likely to be compensated should the company they loaned the money to go bust.
Stocks
Buying stocks or shares in a company means that you are a part-owner of that corporation. The prices of stocks fluctuate wildly every day and are therefore traded on a far more regular basis.
‘Playing the stock market’ requires a great deal of skill but there are people out there who make a living solely out of trading shares. Investing in stocks tends to give investors a bigger payout in the long-term but there is a far greater risk of losing a large percentage of your savings altogether.
In conclusion, bonds are the better choice for those who want a safe and secure investment whilst stocks could be more beneficial who can afford the gamble of possibly losing a share of their savings.
