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Are ISAs a good post-pandemic investment?

by John Saunders
15th Nov 21 8:22 am

The coronavirus pandemic led to investors, big and small, rushing to safeguard their money in droves.

According to a study by the Investment Association, a rise in personal savings during the coronavirus crisis sparked a boom in Isa investment UK with a whopping £1.5 billion flowing into the funds in April 2021.

In the space of a month, savers invested £79 million more into ISAs than over the previous 12 months, the data revealed.

Chris Cummings, chief executive of the Investment Association, said: “Savers have once again shown the appeal of ISAs in helping to get into the savings habit and build up a retirement nest egg.

“Comparing the strong ISA flows this April to the year before shows investors have been moving money into funds to make the most of tax incentivised savings and to deliver better returns amidst low interest rates on cash savings,” he added.

However, as the economy slowly and steadily recovers from the havoc of the pandemic, questions remain around the growth of ISA investments.

In his Autumn Budget in October, chancellor of the exchequer Rishi Sunak announced Isa and Junior Isa spending limits will be frozen at their current levels until at least 2023 under the Treasury’s plans.

Sunak outlined the annual payment limit for adult Isas will be kept at £20,000 for at least another tax year – the fifth year in a row that it’s remained at this level.

The announcement could hit investors with tax and harm savers if inflation begins to multiply further down the line because by placing money in an Isa, savers avoid income tax on interest and capital gains tax on investment performance.

However, stocks & Shares ISAs will create more millionaires each year than the lottery by 2031 as armchair investing overtakes lotto fever, according to new research by an expert chartered by the Royal Statistical Society.

The research, commissioned by the financial comparison website InvestingReviews.co.uk, charted the likely rise of ISA millionaire numbers based on data provided by HMRC and the country’s major investment platforms.

It will take eight years from now for the current number of ISA millionaires across major platforms to double, hitting almost 3,000 by 2029, the research found. And by 2046 — 25 years from now — the total number of ISA millionaires created in the UK will finally eclipse the total number of lottery millionaires created.

By then, the number of ISA millionaires created will have increased more than tenfold to 14,789, growing by more than 1,000 each year on average and overtaking the 13,900 lottery millionaires generated by then.

Lord Lee of Trafford, who became the country’s first ISA millionaire in 2003, said: “The ISA remains the best investment wrapper in the Western world, and I hope this data will encourage more young people to take-up serious long-term investing.”

Simon Jones, CEO of InvestingReviews.co.uk, said: “These days everyone wants a rock star lifestyle and their very own place on millionaires’ row. Happily, that dream looks set to come true for the canny army of armchair investors who have been squirreling money away in their Stocks & Shares ISAs every year. In the race to join the rich list, ISA millionaires are fast turning the tables on lottery players. ISA millionaires numbers are going to explode in the years ahead.”

Marie Oldfield, Chartered Statistician with the Royal Statistical Society, added: “Our data shows the path to riches is likely to be far quicker if you put your money in a Stocks & Shares ISA every month, instead of handing it over to Camelot. Over 30 years, out of 1,000 lottery players, 25 could become millionaires and 975 of them could be expected to collectively lose £585 million. Whereas, all 1,000 could expect to be ISA millionaires worth £1 billion collectively had they shunned the lottery and chosen investing instead.”

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