If you have more money coming in than going out, or have received a lump sum, you may be thinking about how to make the most of it.

It is important to understand the difference between savings and investments. Savers usually want a safe place for their money where they can get at it easily. Investors tend to want their money to grow by at least the rate of inflation, and accept that it may be 'tied up' for some time.

Saving enough money to cover day-to-day needs and emergencies should always take priority over investing. Your personal budget should help you decide whether you should focus mainly on creating income or capital growth.

Remember that savings and investments can have tax implications. Look into tax-free investments, and if you are not a tax payer, make sure you claim back any tax already deducted from interest you receive from other investments.

Understanding risk

There are two basic principles when you invest your money:

• The greater the risk, the greater the potential for reward or loss.
• The greater the ease of access, normally the lower the reward.

Before you invest, think about whether you could get back less than you originally invested because of changes in the financial market.

Also be aware that if you give your money to someone else to manage and invest, there is a danger you could lose it because of mismanagement or fraud. It is vital to look carefully at the strength and reputation of any financial company you are considering investing with. The UK financial industry is very well regulated, but failures can happen. See Investor Protection. Never risk any sum of money you cannot afford to lose.

Non-risk and low risk investment options

If your income is less than your outgoings, or only slightly above, see More money going out than coming in? for tips on income maximisation, budgeting, saving and money management.

If you have a small amount of spare income you may want to consider creating extra income or capital growth by shifting part of your money to:

• Guaranteed Income Bonds;
• High Interest Gilts;
• National Savings Capital Bonds;
• Guaranteed Growth Bonds;
• Index-Linked National Savings Certificates; or 
• Index-Linked Gilts

Financial products explained

Term or Notice accounts (or high interest accounts) are available from building societies, banks, supermarkets, insurance companies and other financial institutions. They have a minimum notice period for withdrawals, for example one month or 90 days. You might not be allowed to withdraw your money sooner, or if you can, you may lose interest or be charged a penalty.

Mini cash ISA. ISAs (or Individual Savings Accounts) give you tax relief on savings held in them. You can put up to £3,000 into a Mini Cash ISA each tax year until at least 2010. You can withdraw your savings without losing any tax benefits. Shop around before opening an ISA to get the best interest rate, and check if there is a notice period for withdrawal. The government's CAT mark will help you identify ISAs with easy access and fair terms. But be aware that it doesn't guarantee the best returns.

National Savings products. National Savings and Investments (NS&I) offer a range of financial products – including those mentioned on pages on More money going out than coming in? They are backed by HM Treasury so there is no risk to your capital. You can buy these products, and get a leaflet about each one, from your Post Office. Or see Useful contacts for NS&I contact details.

Guaranteed Income Bonds and Guaranteed Growth Bonds are investments offered by insurance companies over fixed terms. They are generally safe because there is no risk of loss of capital. But some risk is attached if you have to sell before maturity and with many bonds you can't get your money back early. There is also a risk of 'inflationary loss' on many bonds if you lock into a fixed low interest rate for five years and interest rates rise.

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Gilts. You can loan money to the Government by purchasing securities called gilts. The Government guarantees to pay you interest (either gross or, if you choose, with basic rate tax deducted) at fixed regular intervals (usually twice yearly) and to repay your capital at the stock's face value where a 'redemption date' is given. You can also sell gilts on the stock market before the redemption date but if you do this your capital is not guaranteed. Index-linked gilts provide a safe way of securing capital protection, particularly when inflation is mounting. Contact Computershare Investor Services on 0870 703 0143 for their booklet 'Investing in Gilts'. Gilts will not suit you if you need to get at your money in a hurry.

Warning: Due to their market fluctuations and general complexity, you are advised to consult an independent financial adviser (IFA) before investing in gilts.

This leaflet does not go into medium and high-risk investments such as unit trusts and Maxi ISAs. These are market priced investments so they are subject to stock market fluctuations. Some investments carry a much higher risk including company shares, corporate bonds, venture capital trusts, traded options and futures contracts. When the stocks and shares market is in decline you may risk losing your money if you invest in these areas. Do not consider these investments unless you can afford to lose your money and have taken expert advice from an authorised adviser – an IFA or stockbroker.

Socially responsible or ethical investment

Socially responsible investment was originally demanded by investors who were concerned, for religious reasons, about the arms trade and other 'sin' industries (for example alcohol, tobacco and gambling). The idea now appeals to a wide range of people. You can choose ethical investment options across almost the entire range of financial services. Contact the UK Social Investment Forum for more information on ethical investment and for details of independent financial advisers specialising in this field.

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Financial advice

If you have money to save or invest we recommend that you seek professional advice from an independent financial adviser.

Only 'authorised' financial advisers can advise on certain types of investment, including pensions, life assurance, shares, unit trusts and 'lifetime mortgage' equity release schemes. The Financial Services Authority (FSA) authorises such firms. To check that a firm is authorised phone the FSA Consumer Helpline on 0845 606 1234 or look on the website and follow the Firm Check Service link.

Financial advisers must declare whether they are independent or tied to a particular company. Independent financial advisers can offer a whole range of financial products across the entire market. IFA Promotion can refer you to your nearest independent financial advisers; call their freephone hotline on 0800 085 3250. Tied agents can only offer the products of one company and must tell you which company they represent.

If you have a complaint, try to sort it out with the financial adviser or investment institution directly. If you are not satisfied, take your complaint to an independent complaints scheme, set up to sort out investment disputes. Call the FSA Consumer Helpline on 0845 606 1234 to find out which scheme to contact.

Advice on long–term care planning

If you have some capital, you may be considering whether you wish to provide for long-term care needs either at home or in a care home. If this concerns you, look for a financial adviser with expertise in this area. There are ways to plan ahead to meet potential care costs, but also explore what help could be available though your local authority. Our information sheets 'Paying for Your Care Home' and 'Care at Home' give detailed information on the rules about who pays for care.

Help the Aged runs a Care Fees Advice Service that can help you plan your finances to meet the costs of future care. For a free information pack, call free on 0500 767476 and quote reference CAB06.

Investor protection

Occasionally a financial firm goes out of business and can't pay you the money it owes you. If this happens, you may be able to get compensation from the Financial Services Compensation Scheme. (Note that many overseas investments and firms are not covered by this scheme.) This scheme covers all types of savings and investments offered by regulated firms. It can provide compensation if you have lost money due to an authorised firm's fraud or negligence, which has led to the firm ceasing to trade. Maximum compensation ranges from £31,700 for a bank or building society account up to £48,000 for investments.

For more information contact the Financial Services Compensation Scheme on 020 7892 7300. Always ask about protection and compensation schemes before investing any money.

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Summary of investment advice

• Do get advice from an authorised financial adviser. Check that the firm you are dealing with is authorised to give investment advice and has experience of the issues you wish to discuss.
• Do think about your financial needs and look for the best investment choices in line with your requirements.
• Do think carefully about you and your partner's age and health before tying up any money in medium or long-term investments.
• Do save for a 'rainy day' by keeping an emergency fund.
• Do obtain all the information you can about each investment before making a decision, and make notes about the points important to you.
• Do think about inflation and invest what money you can afford to secure capital growth.
• Do consider the tax aspects of each investment.
• Do pay off debts before considering investing.
• Don't forget that the greater the gains on offer the greater the risk.
• Don't invest any money until you are sure that the investment choice is suitable for you.
• Don't invest any money in an area of risk if you cannot afford to lose it.
• Don't invest in a financial institution or company (other than a UK-based bank or building society) unless you are sure it is authorised under the Financial Services Act.

Further reading

• 'Managing Debt', Yvonne Gallacher and Jim Gray. Published by Age Concern Books (2002). ISBN 0862422361
• 'Money in Retirement', Jonquil Lowe Published by Which? Books (2005). ISBN 1844900134
• 'Your Taxes and Savings', Paul Lewis. Published by Age Concern England (2005). ISBN 0862424070

There are lots of magazines and newspaper sections that look at money management issues. They include Moneywise, Which? Magazine, Money Observer and Money Management. Ask you local library if they keep copies of subscription magazines.