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.
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 portfolio||17 years|
|Using a medium risk model portfolio||15 years|
|Using a higher risk model portfolio||14 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.”