An investments expert has shared the “most effective” way to becoming an ISA millionaire as number of savers achieving this status soars.
According to HM Revenue and Customs (HMRC) figures, some 4,850 savers had ISA pots worth £1million-plus by the end of the financial year in 2022. This was up from 4,070 recorded the previous year.
On average, an ISA millionaire had accumulated £1,351,000 by April 2022, with the 25 wealthiest ISA holders averaging £8,880,000 in their accounts.
Andrew Prosser, head of investments at InvestEngine, said: “The number of ISA millionaires has increased significantly over the past few years, but we can be confident that most people with really big sums are stocks and shares rather than cash ISA holders.
“That is because, even someone who has put the maximum in a cash ISA every year since they were launched in 1999 would be at around £275,000 – a great sum, but well short of millionaire status. In contrast thousands of people have become millionaires through their stocks and shares ISA.”
“For those looking to grow their long-term wealth, a stocks and shares ISA has been shown to be the most effective way to make your money go further and reach those big milestones years earlier than with a Cash ISA.”
While not everyone will be able to put away this type of money each year, Mr Prosser noted how it shows the importance of thinking about the long run with investments and the power of compounding.
He suggested: “Getting started early each year, even with just small amounts, and not leaving investing until the end of the tax year, creates the potential to grow large sums for later in life”
Over the past decade, the average annual return on stocks and shares ISAs has been 9.64% according to data from Unbiased. Over that same period, the return for a lower-risk cash ISA has been just 1.21%.
Mr Prosser said: “If these averages continue into the years to come, those who put away the maximum ISA amount into a stocks and shares account could be an ISA millionaire by 2043 – 19 years from now.
“By comparison, it would take someone with a cash ISA earning the average rate of interest until 2063 – an extra 20 years – to reach the millionaire milestone.”
He added: “Even if average investment returns fell to 5% a year, stocks and shares ISA holders would still become an ISA millionaire within 25 years and still 14 years faster than a cash ISA holder.”
