The odds of becoming an ISA millionaire vs winning a million on the lottery
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Recent data suggests there are now 2,000 people in the UK who can each say they are an ISA millionaire. Interestingly, this is roughly a third of the number of millionaires created by the National Lottery.
So, which of these routes is more likely to make you a millionaire? And how can you improve your chances of joining the millionaire’s club? Let’s explore.
What is an ISA millionaire?
An ISA millionaire is someone who has at least £1 million stashed in an ISA. According to HMRC, there are 2,000 ISA millionaires in the UK.
If you don’t know what an ISA is, it’s largely the same as a normal savings or investing account. The main difference is that any returns you earn are tax free.
For the 2021/2022 tax year, the annual ISA allowance is £20,000, and it will remain at this level for 2022/23 when the new tax year begins on April 6.
Importantly, if you don’t use your annual ISA allowance, you lose it. It doesn’t roll over into the next tax year. This means it’s a good idea to make the most of your allowance before the 5 April cut-off date (which isn’t too far away!).
What are your chances of becoming an ISA millionaire?
If you save £20,000 into an ISA for 25 years, you too can become an ISA millionaire. Sounds easy, right?
Well, that calculation assumes you’ll get an average return of 5% and the government won’t meddle with the annual tax-free allowance in the future.
However, if you do manage to save a significant sum each year for 25 years, you’ll almost certainly have a better chance of becoming an ISA millionaire if you invest in a stocks and shares ISA than you will with a cash ISA.
That’s because returns from stocks and shares typically outperform interest from savings accounts in the long run.
And while an expected 5% annual investing return may be ambitious, earning anything close to this through a Cash ISA will be very, very unlikely.
Right now, the highest easy access cash ISA pays just 0.66% AER variable interest.
How can you improve your chances of becoming an ISA millionaire?
We can safely assume that most ISA millionaires have their wealth stashed in a stocks and shares ISA. This means that of the 13 million adults with a stocks and shares ISA, roughly 0.02% would be members of the millionaires club.
If you aren’t yet a member, here are three tips to help you on your way to becoming an ISA millionaire.
1. Start early
Opening a stocks and shares ISA as early as possible will give more time for your investments to compound. So the earlier you start investing, the better.
Yet, if you don’t consider yourself particularly youthful, don’t fret. As the famous proverb goes “The best time to plant a tree was 20 years ago. The second best time is now.”
Are you looking to open an ISA? If you don’t already have stocks and shares ISA, you’ll need to open one through an investing platform. Hargreaves Lansdown is one of The Motley Fool’s top picks due to its low fees.
2. Increase your contributions
It almost goes without saying, but the more you invest (or save), the healthier your ISA balance will be in future.
While you may not always be able to invest up to the annual limit, increase your contributors whenever you can and your future self will thank you for it.
3. Stick to your plan
Investing is best done with a long-term horizon in mind. That’s because those with a long-term plan have a better chance of riding out any volatile stock movements.
This is particularly important with stocks and shares ISAs given that your ability to replace anything you take out can be limited by the annual tax-free allowance.
How do your odds of becoming an ISA millionaire compare to winning the lottery?
Since launching in 1994, the National Lottery has created more than 5,900 millionaires (so far). It’s estimated that you have a one in 45,057,474 chance of scooping the jackpot with a single ticket.
To put this into context, 1 in 50 stocks and shares ISA holders are ISA millionaires.
This means that you’re almost ONE MILLION times more likely to become a millionaire through a stocks and shares ISA than you are by scooping the National Lottery jackpot!
Are you keen to learn more about ISAs? Take a look at The Motley Fool’s stocks and shares ISAs 101.
Please note that tax treatment depends on your individual circumstances and may be subject to change in the future. 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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