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Savers can hit £1m in 21 years with new Isa limit

Savers can hit £1m in 21 years with new Isa limit

Savers who make full use of the fresh Isa limit from next year could reach the £500,000 mark three years earlier than under the current system, new figures have revealed.

Chancellor George Osborne announced in his Budget last week that a new Isa allowance of £20,000 would come into force from April 2017, a rise from the current annual limit of £15,240.

Analysis from online investment platform Rplan found that under the new regime it would take 21 years for a cash Isa pot to grow to the £1m mark, against 24 years under the current allowance.

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It also found those who put the new maximum of £1,666 into a higher risk investment fund Isa every month could have £500,000 in their pot in 14 years - 10 years quicker than they could reach that amount investing under current limits in a cash Isa.

Nick Curry, director at Rplan, said compounding interest - the payment of interest on top of previous interest - means Isa savers could reach £1m in 21 years by investing in a high risk portfolio, which is just as long as it takes to reach half the amount with cash.

Saving maximum monthly allowance of £1,666 Number of years to reach £500,000 from April 2017
With the current best buy easy-access Isa - 1.41%21 years
Using a lower risk model portfolio17 years
Using a medium risk model portfolio15 years
Using a higher risk model portfolio14 years

Tony Catt, compliance officer at Peacehaven-based Anthony Catt Limited, said he was not surprised by Rplan’s figures, because being able to put an extra £5,000 in every year can accumulate very quickly.

“However, the problem with taking high risk is, while it could achieve that rate quicker, the investment could also drop like a stone, so it has to be within the client’s attitude to risk.”

katherine.denham@ft.com