From the Millennium Dome and Y2K (year 2000) bug to Ricky Martin’s “Livin’ La Vida Loca”, 1999 was a memorable year. The launch of the individual savings account (ISA) might not have made quite as many headlines as the turn of the century, especially as the ISA essentially replaced a similar tax-efficient investment account called the personal equity plan (PEP). In hindsight, however, it was an important moment for investors who decided to take advantage of the new tax-efficient savings wrapper. 

According to our analysis, someone who invested their whole stocks and shares ISA allowance every year for the past 25 years could be sitting on a nest egg worth nearly £900,000.

Read on to find out about the history of ISAs and what the numbers tell us about the power of investing.

ISAs then and now

ISAs were launched on 6 April 1999 by then-chancellor Gordon Brown. They’ve since become an essential way of saving and investing – whether that’s to grow your money, fund a specific financial goal or save for retirement alongside pensions. 

The main benefit of ISAs – that there’s no tax to pay on dividends, interest or capital growth – has remained the same throughout the last 25 years. However, new types of ISA have been launched and the amount you can invest in ISAs each year has risen.

At launch, the annual ISA allowance was just £7,000 and the way you could split this was a bit different than it is today. You could invest up to £7,000 in stocks and shares, or up to £3,000 in cash and up to £4,000 in stocks and shares.

Today, the annual ISA allowance is £20,000 and you can split this across different ISA types as you see fit. From 6 April, it will also be possible to open and pay into multiple ISAs of the same type in the same tax year. The only exception is the lifetime ISA – which has an annual contribution limit of £4,000 and you can only contribute to one lifetime ISA each tax year1.

How much could you have made?

25 years is a long time to be consistently squirreling away large amounts of money. But for someone who did have the means and foresight (and was old enough!) to max out their stocks and shares ISA allowance every year, the numbers make for impressive reading. 

The investor’s contributions over the 25-year period would have totalled £306,560. And if they’d invested those contributions in shares every year, they’d have accumulated an impressive £898,361 before fees (assuming they didn’t withdraw any money over the period). In our analysis, shares are represented by a global stock market index. It’s not possible to invest directly in an index (you can only do so through a fund, which involves costs) but it gives a sense of the bigger picture.

If the individual had instead put their contributions in a cash savings account2 each year, their pot at the end of the period would be worth £360,019 – that’s less than half the amount.

25 years of maximising your ISA allowance: Investing vs cash

Past performance is not a reliable indicator of future results.

Notes: The chart shows the impact of investing the stocks and shares ISA allowance every year since 1999 versus putting the same amount in cash savings. Shares are represented by the MSCI World Index. Returns do not include the impact of fees. Returns include the reinvestment of all dividends and any capital gains distributions. Cash returns are represented by the UK Sterling Overnight Index Average benchmark (SONIA), which reflects the average rate of interest banks pay to borrow overnight.

Source: Vanguard calculations based on the period 6 April 1999 to 8 March 2024.

The power of investing

The chart demonstrates an important point: growing your money doesn’t just depend on how much you save, but also on where you put it. 

In our example, investing in the stock market fund adds a huge £591,801 to the value of the investor’s pot. In contrast, the cash savings account adds just £53,459. 

Of course, you can’t rely on past performance and it’s important to remember that investing carries risk. Shares go down as well as up and you may get back less than you invest. However, history shows that patient investors who are willing and able to accept the risk that comes with investing tend to be rewarded over long periods. 

If, like most people, you haven’t been maxing out ISAs since 1999 (you might not even have been alive after all!) don’t despair because today could be a great time to get started. As the Chinese proverb goes, “The best time to plant a tree was 20 years ago*. The second best time is now.” 

*Or 25 years ago in this case!

These rules also do not apply to junior ISAs. A child can only have one cash junior ISA and one stocks and shares junior ISA at any one time. The annual allowance for junior ISAs is currently £9,000.

Cash returns are represented by the UK Sterling Overnight Index Average benchmark (SONIA), which reflects the average rate of interest banks pay to borrow overnight. 

Vanguard ISA

Learn more about our Stocks and Shares ISA.

Investment information

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

Past performance is not a reliable indicator of future results.

The eligibility to invest in either ISA or Junior ISA depends on individual circumstances and all tax rules may change in future.

Important information

Vanguard Asset Management Limited only gives information on products and services and does not give investment advice based on individual circumstances. If you have any questions related to your investment decision or the suitability or appropriateness for you of the product[s] described, please contact your financial adviser.

This article is designed for use by, and is directed only at persons resident in the UK.

The information contained in this article is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information in this article does not constitute legal, tax, or investment advice. You must not, therefore, rely on the content of this document when making any investment decisions.

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