In a recent post called ISA allowances history and why adding the maximum makes sense, we looked at the history of ISA allowances. Today I want to give you more detail and explain why we believe ISAs are one of the UK’s best-kept secrets. There's no doubt that they can play a major part in providing you with a secure future and comfortable retirement.
Historical ISA limits - the maximum you could have invested
Individual Savings Accounts (ISAs) were introduced in 1999, replacing a similar scheme called Personal Equity Plans (PEPs) that ran from 1987 to 1999. The table below shows both historical ISA limits and those for PEPs right back to 1987. As you can see, a couple that had taken full advantage of ISAs and PEPs since 1987, and invested the maximum contribution each year, would have sheltered over £400,000 from the tax man so far.
ISA Maximum Contribution History - PEP and ISA History
Year |
Allowance 1 (£)
Allowance 2 (£)
(Partner)
Total contribution per couple (£)
1987
2,400
2,400
4,800
1988
3,000
3,000
6,000
1989
7,800
7,800
15,600
1990
6,000
6,000
12,000
1991
9,000
9,000
18,000
1992
9,000
9,000
18,000
1993
9,000
9,000
18,000
1994
9,000
9,000
18,000
1995
9,000
9,000
18,000
1996
9,000
9,000
18,000
1997
9,000
9,000
18,000
1998
9,000
9,000
18,000
1999
7,000
7,000
14,000
2000
7,000
7,000
14,000
2001
7,000
7,000
14,000
2002
7,000
7,000
14,000
2003
7,000
7,000
14,000
2004
7,000
7,000
14,000
2005
7,000
7,000
14,000
2006
7,000
7,000
14,000
2007
7,000
7,000
14,000
2008
7,000
7,000
14,000
2009
7,200
7,200
14,400
2010
10,200
10,200
20,400
2011
10,680
10,680
21,360
2012
11,,280
11,,280
22,560
Total contributions to date
£200,560
£200,560
£401,120
£400,000 tax-free is a nice sum of money. However, if this same couple had invested up the historical ISA limits and had achieved a 7% per year return on their savings, they would have become ISA millionaires!
Historical ISA limits & the power of compound interest
Take a look at the table below. Notice how the couple’s annual ISA contribution grows from being worth £4,800 into an impressive and very comforting £1,069,739. That’s the power of compound interest and no wonder Einstein referred to it as the eighth wonder of the world.
Year |
Allowance 1 (£)
Allowance 2 (£)
(Partner)
Total contribution per couple (£)
@ 7% annual growth (£)
1987
2,400
2,400
4,800
5,136
1988
3,000
3,000
6,000
11,916
1989
7,800
7,800
15,600
29,442
1990
6,000
6,000
12,000
44,343
1991
9,000
9,000
18,000
66,706
1992
9,000
9,000
18,000
90.636
1993
9,000
9,000
18,000
116,240
1994
9,000
9,000
18,000
143,637
1995
9,000
9,000
18,000
172,952
1996
9,000
9,000
18,000
204,319
1997
9,000
9,000
18,000
237,881
1998
9,000
9,000
18,000
273,792
1999
7,000
7,000
14,000
307,938
2000
7,000
7,000
14,000
344,474
2001
7,000
7,000
14,000
383,567
2002
7,000
7,000
14,000
425,396
2003
7,000
7,000
14,000
470,154
2004
7,000
7,000
14,000
518,045
2005
7,000
7,000
14,000
569,288
2006
7,000
7,000
14,000
624,118
2007
7,000
7,000
14,000
682,786
2008
7,000
7,000
14,000
745,561
2009
7,200
7,200
14,400
813,159
2010
10,200
10,200
20,400
891,908
2011
10,680
10,680
21,360
977,196
2012
11,280
11,,280
22,560
1,069,739
Total contributions to date
£200,560
£200,560
£401,120
As you can see, over the twenty six years, the couple put away £401,120 by investing up to historical ISA limits. However, with their ISA accounts growing each year at 7% too, their investment has grown to £1,069,739, a 166.7% cumulative gain.
Hopefully this will give you plenty of incentive to either start adding the maximum each year, or to continue to do so. If you want more detail on ‘adding the max’, take a look at Tip #7, from our Top 10 Tips for Successful ISA Investing.
Please note: Past performance should not be used as a guide to future performance, which is not guaranteed. Investing in Funds should be considered a long-term investment. The value of the investment can go down as well as up and there is no guarantee that you will get back the amount you originally invested.
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