Do you might have what it takes to be an Isa millionaire?

Becoming a millionaire is something many of us dream about – but building such an impressive nest egg is not as out of reach as you think.

In fact, almost 5,000 savers are enjoying an enviable seven-figure fortune using a tax-free Individual Savings Account (Isa), according to the latest data from financial app Plum.

What are the Isa millionaire secrets?

You are more likely to reach millionaire status by investing in a stocks and shares Isa than a cash Isa, as returns typically outperform interest on cash savings, but come with greater risk.

Laura Suter, personal finance director at investment platform AJ Bell, says most Isa millionaires are in their 60s and 70s, with almost one in five hitting the milestone before turning 60.

‘It illustrates the crucial impact of compound returns over the long-term,’ she says.

According to Alice Haine, of investment platform Bestinvest, it could take 27 years to hit £1 million if savers invest the £20,000 allowance every year in a stocks and shares Isa. This assumes a yearly growth of 6 per cent and 2 per cent inflation.

Impressive: Almost 5,000 savers are enjoying an enviable seven-figure fortune using a tax-free Individual Savings Account

It would take a further nine years to become a millionaire if they funnel the £20,000 allowance into a cash Isa. 

This assumes the same inflation rate and that cash grows by 3.62 per cent every year, the current average interest rate.

Among existing Isa millionaires, investment trusts are the top choice – 41 per centof their portfolio on average, according to platform Interactive Investor – higher than the 34 per cent for an average Isa holder.

These closed-end funds pool money from investors and buy a portfolio of investments on their behalf. Trusts are companies in their own right and are publicly listed and traded.

Laith Khalaf, of AJ Bell, says: ‘Trusts have an advantage over open-ended funds because they can borrow to invest. 

‘This tends to exacerbate returns in rising markets though, clearly, it’s a risk in falling markets. 

‘Most Isa millionaires are experienced investors, so are happy with the complexity of investment trusts.’

There are at least 50 investment trusts that would have transformed savers into Isa millionaires if they had added the full allowance each year, says the Association of Investment Companies (AIC). 

But there is no guarantee that they would achieve the same level of performance now – and investing in one trust is risky.

Technology is strong among the top four trusts – all of which would have netted an investor more than £2 million over 25 years. 

If they put away the full yearly allowance from 1999 to 2024 – £326,560 – into the Allianz Technology Trust and reinvested dividends, they would now have £2,936,182.

Trusts with steady, long-term growth are popular. Investment platform Hargreaves Lansdown says Baillie Gifford’s Scottish Mortgage Investment Trust was top, with a £2,335,775 return.

Open-ended funds make up 22 per cent of a typical Isa investor’s portfolio, compared with 13 per cent for an Isa millionaire. They can issue an unlimited number of shares based on demand but cannot borrow to make further investments.

Mutual fund Fundsmith Equity is the most sought-after on the Hargreaves platform.

Kate Marshall, analyst at Hargreaves Lansdown, says the global sector dominates the list, as it allows investors to spread risk.

Asia funds are popular among investors who accept volatility.

When it comes to shares, blue chip companies such as Shell are favoured, while oil and gas and health stocks also feature.

Ms Haine says patience is key: ‘You don’t have to be a schooled stock picker to be an Isa millionaire. Just max out your Isa every year and stay invested.’