Here’s how you can become an ISA millionaire as numbers hit record high

The number of ISA millionaires in the UK has surged to a record high, surpassing 5,000 for the first time.

A Freedom of Information (FOI) request from money platform Plum showed HMRC recorded 5,070 ISA millionaires at the end of the 2022-23 period – the latest figures available – a five per cent gain on the year before, meaning there are likely to be even more now.

Each person in the UK gets a maximum £20,000 annual tax-free savings allowance to put into ISAs.

While it’s possible to become an ISA millionaire simply by saving cash and trying to get a good interest rate, it would take a long time and probably would have its real value eroded by inflation, but those who invest their cash, such as in a stocks and shares ISA which typically yeild higher interest, have typically seen far better returns over the long term.

The latest HMRC figures show that 50 investors who did just that now have ISA pots exceeding £4m.

For most people, maxing out the £20,000 limit every year simply won’t be possible – but that doesn’t mean accumulating hugely significant sums is off the table.

Thanks to how compound interest works, simply by being consistent with putting money into savings and achieving average returns over a long period of time, it’s reasonable to suggest someone would hit the £1m mark before retirement if they started early enough.

For example, a person saving £300 every month in a stocks and shares ISA which attained a 7 per cent annual growth rate would, after 40 years, have a pot of £750,000.

Put another way, if a 30-year-old started saving £300 a month but increased their contributions by ten per cent each year (so £300 a month the first year, £330 a month the second year and so on) then they’d have over £1.2m in their investment account by age 60, again assuming a 7 per cent annual return.

The MSCI World Index, a typical investing baseline that tracks the performance of 1,500 companies across the globe, has returned more than 7 per cent annually over the past quarter of a century.

As such, the number of ISA millionaires could be expected to grow at a faster rate in the coming years, as those who don’t max out their allowance but are consistent about contributing to it see their gains speed up the longer into their journey they go.

“Looking at the picture more broadly since ISA millionaire numbers were first tracked in 2016, there’s only been a single annual dip recorded during that time, which was in 2020 when markets initially went into a major downturn at the beginning of the Covid-19 pandemic,” said Plum’s Rajan Lakhani.

“Against that backdrop, the long-term trajectory for stocks has typically been one of continued elevation.”

During the upcoming Budget, it is expected that Rachel Reeves may cut the cash ISA allowance from £20,000 down to £12,000 as part of an attempt to push to get more Britons to invest their money instead.

While that may not be enough to impact many people’s habits, it does at least re-initiate the conversation that some people may be better served by putting money into longer-term investment plans, once they are cleared of high-interest debt and have cash savings buffers available.

With pension contributions likely to also be facing changes, ISAs could take on even more importance as one of the few remaining ways people can maximise their wealth without facing tax penalties.