You may have heard that there are over 2,000 ISA millionaires in the UK. In fact, you are over a million times more likely to become a millionaire through investing in an ISA than you are by playing the lottery. However, it takes more than simply owning an ISA to achieve millionaire status.
To become an ISA millionaire, you need to make the most of your ISA allowance to maximise your tax-free savings every year. So, exactly how many years of maxing out a stocks and shares ISA might it take to become a millionaire?
How much can you deposit in a stocks and shares ISA?
UK citizens are allowed to deposit a maximum of £20,000 per year into a stocks and shares ISA. Any profit made on this deposit will be completely tax-free! You cannot deposit more than £20,000 into your stocks and shares ISA in any one tax year. This is known as your ISA allowance.
As well as this, any portion of your ISA allowance that goes unused does not roll over to the next year. Therefore, failing to make the most of your allowance could mean that you miss out on huge savings opportunities.
You are also only allowed to hold one stocks and shares ISA at any given time. However, you are allowed to hold other types of ISAs along with your stocks and shares ISA, such as a cash ISA or a lifetime ISA.
How many years might it take to become an ISA millionaire?
The length of time it could take to become an ISA millionaire depends largely on your investing habits and the rate of return. For the purpose of this article, we will use the average rate of return based on the FTSE 100 index tracker. However, the annual return on your ISA may be slightly different.
Since its formation, the average return offered by the FTSE 100 has been around 7.75%. However, this can change each year due to market fluctuations. Using an investment calculator, you can work out how long it would take you to save £1 million.
If you deposited £10,000 into a stocks and shares ISA with a return of 7.75% and used your full ISA allowance each year, it would take you 28 years to become an ISA millionaire. Of course, this time frame will be different based on how much you choose to initially invest. If you invest just £1,000, you could potentially be a millionaire in 47 years.
As always, investing in the stock market puts your capital at risk and the return on your investment can never be guaranteed.
What stocks and shares ISA offers the highest returns?
The rate of return offered by a stocks and shares ISA can fluctuate each year. For example, the average stocks and shares ISA returned 13.5% in 2021! However, in 2020 investors lost an average of 13.5% due to the pandemic. Therefore, it is difficult to pinpoint one ISA that outperforms the others.
Instead, you should consider your own priorities when investing your money. In particular, you should take a look at platform fees, stock selection and extra features that different providers may offer. Often, getting the highest returns from your ISA is about more than just market activity.
Why not take a look at our top-rated Stocks and Shares ISAs to get an idea of what different platforms have to offer?
A Foolish final thought
If becoming a millionaire is at the top of your bucket list, then investing in a stocks and shares ISA is a great way to achieve your goal. However, always be aware that the stock market can change at any time. And don’t forget the calculation above is only a rough estimate of how long it could take to save £1 million.
The content in this article is provided for information purposes only. It is not intended to be, nor does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Don’t leave it until the last minute: get your ISA sorted now!
If you’re looking to invest in shares, ETFs or funds, then opening a Stocks and Shares ISA could be a great choice. Shelter up to £20,000 this tax year from the Taxman, there’s no UK income tax or capital gains to pay any potential profits.
Our Motley Fool experts have reviewed and ranked some of the top Stocks and Shares ISAs available, to help you pick.
Investments involve various risks, and you may get back less than you put in. Tax benefits depend on individual circumstances and tax rules, which could change.
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About the author
Ruby is a freelance writer who enjoys writing about all things personal finance. After embarking on her own side hustle journey three years ago, Ruby is passionate about helping others to learn about the ins and outs of persona… Read More
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