Nearly 5,000 savers are 'ISA millionaires' - here are four ways you could become one

The number of " millionaires" has surged by around a fifth in the space of a year, new data shows.

According to HM Revenue and Customs (HMRC) figures, some 4,850 savers had ISA pots worth £1million-plus by the end of the financial year in 2022. This was up from 4,070 recorded the previous year.

These stats were obtained from a Freedom of Information (FOI) request made by fintech firm Plum.

On average, an ISA millionaire had accumulated £1,351,000 by April 2022, with the 25 wealthiest ISA holders averaging £8,880,000 in their accounts.

However, HMRC cautioned when releasing the data that, each year, some ISA managers may enter records incorrectly, or fail to submit, therefore the figures should be treated as a guide and may not reflect the true number of ISA millionaires.

Highlighting the tax-efficient appeal of ISAs, Rajan Lakhani, of smart money app Plum, said: "ISA millionaire wealth continues to grow, even as other savings and investment products lose a little of their shine following recent tax changes. A large part of the ISA's appeal is the flexibility and liquidity it offers investors.

"While only a fraction of savers will be able to amass a million pounds in their ISA, investing even small amounts regularly can add up to a significant sum over time, and go a long way to helping people meet their financial goals. That's especially the case if you begin your investing journey early."

However, Mr Lakhani noted: "Of course, it's also important to have a rainy day fund, and a Cash ISA is ideal for insulating yourself from future shocks, like a sudden job loss or poor health, or to use for things you need in the shorter term."

There are a few ways people can increase their prospects of securing a one-million pound ISA, according to Shaun Moore, tax and financial planning expert at Quilter.

He explained: "One key rule of thumb is to make full use of the annual ISA allowance, currently set at £20,000.

"By consistently investing up to this limit in a diversified Stocks and Shares ISA, savers improve their chances of hitting substantial growth targets. Achieving an annual return of around 6% to 8% is often feasible within a balanced investment portfolio, which is significantly higher than the rates generally offered by Cash ISAs.

"Over 24 to 30 years, these higher returns compound meaningfully, making the goal of reaching £1million more realistic."

Starting early is "equally vital", the tax expert urged. He explained: "The more time investors have, the more they can benefit from compounding - reinvesting gains to achieve growth on growth. Even starting with modest contributions can yield impressive results over the long term."

Another helpful strategy is the "20% rule," where individuals aim to allocate 20% of their income towards investments.

Mr Moore said: "This may be a stretch for some, but setting aside a consistent proportion of income ensures a growing investment pot over time, especially as earnings increase.

"Our calculations show that someone who is 25 today contributing £10,500 to an ISA each year, getting a 5% average return and paying 1% in fees would reach millionaire status in 40 years. This means they would have over a million pounds in retirement."