What’s an ISA millionaire and how do I become one?

We all love a millionaire story, whether it’s a lottery winner or when somebody wins one of those £3m house draws. More recently, the financial press has started to talk about ISA millionaires, so who are they and what’s it all about?

A little background. An ISA is effectively a tax-break that allows you to save up to £20,000 tax-free, each year. You can have a cash ISA (not a great idea with low savings rates/high inflation), or a stocks & shares ISA, which lets you invest in funds and company shares as well as cash.

If you choose your investments well and invest your £20,000 allowance each year, how long until that money is worth £1m tax-free? The reality is that you’d need to generate around 8% growth each and every year for 21 years before you hit the £1m mark.

And that’s before you pay any investment charges on your investments, which can drag performance down. Just 1% of additional investment charges per year will turn your £1m into £930,000. Remember that each 1%, or fraction thereof, can lose you tens of thousands of pounds over the duration of your investments.

Don’t forget to go to our comparison tool and check you’re getting the best value for money from your investment provider.

To become a millionaire, all you need to do is put your full £20,000 ISA allowance in every year for 21 years and pick some good investments! If you’re 30 years old now, then you too could be a millionaire at 51. Picking investments is the harder bit but most DIY platforms have recommended fund lists and portfolios and if you choose a robo-style digital investment provider, they pick the investments for you based on your risk profile.

Go for it and remember that every successful ISA millionaire starts at Compare+Invest.

Photo by Clay Banks on Unsplash

Article is accurate at date of writing.