How to become an ISA multi-millionaire

Many investors dream of reaching ISA millionaire status but what do you do once you reach that milestone?

There are just six weeks left until the end of the tax year and many investors will be looking to find the best stocks and shares ISAs to make use of their tax-free savings allowances.

Research by InvestEngine, based on a freedom of information request to HMRC, shows the number of ISA millionaires in the UK has surged to 4,850 — a near 1,000% increase since 2016 when there were only 450.

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Andrew Prosser, head of investments at InvestEngine, predicts the number of ISA millionaires will rise. It comes despite speculation about the future of cash ISAs.

Prosser said: “A quarter of a century on from their launch, ISAs continue to be a crucial vehicle for so many when it comes to growing their wealth over time. We are now seeing that approach paying dividends, with the rapid increase in the number of both ISA millionaires and now multi-millionaires.

“Given the comparably limited long-term potential of cash ISAs, even for those who have maxed their accounts since their inception and received good interest rates, we can be confident that those attaining millionaire status have invested tax-free in the stock market via their ISAs.

“The findings are a reminder of the value that investing early and consistently in a diversified portfolio can bring when it comes to growing long-term wealth and why more people should consider investing as a way of reaching their financial goals.”

Recent data from the Association of Investment Companies highlighted the top investment trusts that have made investors ISA millionaires by consistently making using of their £20,000 allowance each year for 25 years.

The good news for ISA millionaires is that you don’t have to wait as long to make your second million.

How to become an ISA multi-millionaire

Research by AJ Bell suggests that if you invested £1,433 per month into a stocks and shares ISA and achieve annual growth of 6%, you would become a millionaire after 25 years.

But thanks to the power of compound interest – where your returns are automatically reinvested on top of your existing contributions – it only takes another 10 years to reach the £2 million mark. This makes it 2.5 times easier to make your second million tax-free.

The platform’s analysis shows that to get from zero to £1 million in 25 years you need to stump up £429,900 in total of your own money from saving £1,433 a month.

But to get from £1 million to £2 million by saving the same monthly amount, you would only need to stash away £171,960 yourself. Over a decade of saving, you would receive £859,189 in growth, according to the research.

Getting to your third million would only take a further six years of saving £1,433 a month.

During this time you would only need to stump up £103,176 in savings, with £874,067 accruing in fund growth. In total that means 41 years of saving £1,433 a month to get to £3 million.

Laith Khalaf, head of investment analysis at AJ Bell, said: “It’s no walk in the park to build up a million pound ISA, but once you get there, hitting new milestones becomes increasingly easy because you have a huge tailwind from growth on the money you’ve already stashed away.

“Happily, the helping hand of compound growth doesn’t just affect those with more than a million pounds clocked up; the same dynamic plays out no matter how much you’re saving each month.”

Compound interest of course isn’t only for the wealthy and will benefit all investors over the long-term.

It is also never too late to start.

Hargreaves Lansdown said the average age of its ISA millionaires is 72. So even if you are in your 40s or 50s, you could start putting money away now and still have time to reach the millionaire milestone.

The investment platform said it still has investors putting money away beyond age 100 with some centenarians also reaching millionaire status.

Sarah Coles, head of personal finance for Hargreaves Lansdown, said: “It’s the ultimate get rich slow success story, as investors build their portfolios slowly and carefully, so they have plenty of money to keep them secure in retirement.”