3rd April 2015 at 10:27am
So what sort of savings vehicle is an ISA, a hot hatch or a luxury limo? Depending on your approach it has the potential to be a bit of both.
ISAs have had their chassis modified over the past year and you’ve now more options than ever on the model that best suits you. You could go all in Stocks and Shares, all in cash, or even a bit of both and their fuel tanks just got bigger too, you can now pump £15,240 into it.
They certainly hold the potential to take you into the luxury market, and it’s been proved becoming an ISA millionaire is achievable. Recent research from The Telegraph suggests Britain currently has around 200 ISA millionaires and this figure could soon reach 2,000 based on their calculations. The most notable is perhaps Lord Lee, a Liberal Democrat peer who is believed to be the first investor to amass £1m in an ISA according to The Telegraph.
Becoming an ISA millionaire is by no means an impossible dream. It’s a subject we’ve written about before but we thought with recent rule changes, allowance increases and it being the start of a new tax year, it is something worth revisiting. Let’s say you’ve invested the maximum annual contribution in an ISA, after 30 years you might be joining that ISA millionaires club. It’s achievable and the sooner you set up an ISA account, the more chance you’ll have of getting there.
Here’s our three steps to potentially securing the dream:
Take out a Stocks and Shares ISA
To maximise growth potential over the medium to long term, as you set out on your journey to become an ISA millionaire, a Stocks and Shares ISA could be the answer.
This helps you to save smart – there’s no income tax to pay, and no capital gains tax either on ISAs. But it’s worth remembering that unlike a Cash ISA, with a Stocks and Shares ISA the value of your investment can go up or down and may be worth less than you paid in. But the potential for growth over the medium to long term is greater than with cash.
Pay in regularly –and use your full allowance
With ISAs, you can’t pay in money retrospectively after the annual deadline has passed. In other words, if you don’t use your full allowance before 5 April in a tax year, you miss out on the benefit. So decide what you can afford and pay it direct from your bank account by monthly standing order or direct debit. After a few months, you won’t even miss it, but you may be surprised how quickly your investments can grow. If you haven’t reached the maximum allowance, you can also top-up your investments with lump sums if you receive a windfall.
The earlier you start, the better.
The great news is that an ISA will compound its interest – simply put, you earn interest on top of the funds you have and the interest you make on those funds. The magical properties of compounding can really make a big difference to savings, particularly over a longer period of time, although again there’s no guarantee your ISA will grow
However, the sooner you start investing, the more you could end up with: you can never start too soon. Follow this three step plan and your ISA fund could top £1m during your lifetime. But even if your ISA doesn’t hit seven figures and fire you into the limo league it’s still a nice little hot hatch and putting what you can afford away on a regular basis could see you drive off with a sizeable sum.
This blog and any responses to comments are not financial advice. A stocks and shares ISA is an investment and investments can go up or down. You might not get out what you pay in. Tax rules and legislation may change in the future. Any information provided here is based on our understanding of law and current HM Revenue and Customs.