The relationship between foreign aid and domestic savings of a recipient country has for a long period of time interested many researchers and policy makers. In this paper the debates on the impact of aid on domestic savings is not only reviewed but also applied to a specific case of Tanzania. Whereas there is evidence to show that there is a negative relation between domestic savings on one hand and foreign aid on the other, the direction of causation seems, at least for the Tanzanian case, to run from aid to savings. There is need, however, to further investigate the underlying causes of the observed negative relationship between aid and domestic savings in Tanzania.