How to become an Isa millionaire in 22 years

How to become an Isa millionaire in 22 years

Innovative Finance Isas could help investors grow money at twice the speed of normal Isas, according to the chief executive of investment platform Easymoney.

Andrew de Candole said investors could make "real inroads" into their savings goals through IF Isas.

IF Isas were introduced in April 2016 and allow investors to invest in peer to peer products, which typically carry higher risk than conventional shares or cash.

Mr de Candole said: "Investors can shed years off the time needed to become a millionaire by taking the simple step of investing in an Innovative Finance Isa."

Easymoney, which is backed by Easyjet founder Sir Stelios Haji-Ioannou, found investors using their full annual tax-free allowance of £20,000 would take 22 years to become millionaires using an IF Isa, compared to nearly twice that by using a cash Isa.

Under calculations by Easymoney, assuming investors used all of their allowance each year, and invested it in its IF Isa with a target rate of return of up to 7.28 per cent, investors would become ‘Isa millionaires’ by 2041.

The analysis found that using a cash Isa, the same investors would have to wait until 2061 to become millionaires, if they chose an easy access cash Isa at an assumed rate of 1.45 per cent.

"Given the huge difference in the time it takes to become a millionaire, cash Isas do not seem worth it," said Mr de Candole.

He said he believes many investors have become "fed up" with low interest rates being offered by cash ISAs and they are now seeking to embrace alternatives.

However, Laura Suter, a personal finance analyst at AJ Bell, said many savers felt nervous moving out of cash.

Ms Suter said clients may feel uncomfortable because of fears about getting the timing right to enter investment markets, or because they have concerns about the risk of losing their hard-earned savings.

She said: "There are good reasons to hold cash. It is important to have as a rainy-day or emergency fund, or money you know you’ll need to spend in the next few years. But if you don’t know why you’re holding cash then you should consider investing it.

"With inflation currently around 2 per cent and the best cash Isa account paying 1.5 per cent, you’re losing money in real terms by sticking in cash."

Ms Suter underlined that investors looking for higher returns should also consider the additional risk that they might be taking.

She added: "There’s no such thing as a free lunch, and in order to generate higher returns you’ll need to take more risk.  

"A cash Isa and an IF Isa are not the same thing and, like with any investment, you will have to work out how much risk you can handle, and whether you will panic if your investment loses you money – even in the short term."