Have you ever idly wondered how much you need to save to build up a million pounds in an ISA over 25 years? In case you have, the answer is £1,433 per month, assuming you get 6% growth on your investments.

That’s clearly a pretty punchy amount to be able to stash away from your monthly income, but before you decide to give up and start trading crypto or robbing banks, consider this: if you get to the million pound mark, getting to your second million is much easier, and whether you’re building towards a savings pot of £1 million, £100,000 or £10,000, the same dynamic applies.

After you’ve built up £1 million in 25 years, if you continue to save the same £1,433 each month in an ISA, it would take less than 10 more years to get to your second million because as well as the money you’re saving each month, you’re also getting growth on the first million pounds you’ve built up.  

Compound growth is a quite wonderful thing when you break it down – even to reach your first million pounds in 25 years, you would only need to save less than half of this sum, or £429,900, because the remainder would be made up by growth on the savings you make, assuming 6% net fund growth.

Indeed, after 12 years of saving £1,433 per month, your annual fund growth is already exceeding the £17,196 you’re putting away each year. This effect gets turbocharged the more you save, thanks to the growth on the money you’ve already built up.

This explains why it only takes 10 years, rather than 25 years, to save your second million. In other words, it’s 2.5 times easier to save your second ISA million than your first.

This is reflected in the amount you need to save as well. To get from £0 to £1 million in 25 years you need to stump up £429,900. But to get from £1 million to £2 million by saving £1,433 each month, you would only need to stash away £171,960 yourself. Over that decade of saving, you would receive £859,189 in growth, because not only are your new savings growing, but so is the million pounds you’ve already built up in your ISA.

Numbers do not add to round millions as they have been calculated based on whole years of saving.

Feeling a bit greedy all of a sudden? Well, to get to your third million would only take a further six years of saving £1,433 per month, during which time you would need to stump up £103,176 in savings, with £874,067 accruing in fund growth.

In total that means 41 years of saving £1,433 each month to get to £3 million. But if you are in the fortunate position of being able to do that, over the course of those 41 years you would have stashed away £705,036, with the remaining £2,303,414 coming from fund growth (the total slightly exceeds £3 million as we are working in whole years of saving).

Obviously £1,433 is a chunky amount of monthly savings to be able to set aside, but the magic of compound growth applies whatever your target nest egg is. For instance, to build up your first £100,000 over 25 years would require monthly savings of £143, and if you carried on at this pace of contributions you’d hit the £200,000 mark within 10 further years, and £300,000 within an additional six years.

In total, over 41 years you would have saved £70,504 yourself with a further £230,341 coming from fund growth (again figures add to just over £300,000 as we have calculated them using whole years of saving).

The level of growth you get does matter to the time it takes to build up your nest egg. Our example assumes 6% growth, but if you only get 4% growth, a level more in line with long run cash rates, then it would take you 30 years to build up £1 million from a monthly saving of £1,433 rather than 25 years.

It would then take another 14 years to hit the £2 million mark, meaning 44 years in total to hit the £2 million mark with 4% growth compared to 35 years at 6% growth. Conversely, if you received 8% growth on your investments, then you would hit the £1 million mark after 22 years and the £2 million mark after a further eight years (30 years in total).

We’ve also assumed in these examples there is no tax to pay on investment returns, which is the case within an ISA wrapper. Hitting the same goals outside an ISA would require more time, greater monthly savings, or higher gross returns.

However, a £1,433 monthly saving equates to £17,196 a year, which falls neatly within the annual ISA allowance of £20,000, so any
tax to be paid on this amount of saving is ultimately voluntary.