Here’s how much £20,000 in an ISA today could be worth in 10 years…

Individual Savings Accounts (ISAs) are incredible wealth generating vehicles. Anyone who ignores them is literally leaving money on the table (for the tax man).

Wondering how much 20 grand in an ISA (the standard annual allowance) today could be worth in 10 years? Let’s crunch some numbers, looking at both Cash ISAs and Stocks and Shares ISAs.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Cash returns

A Cash ISA is at the mercy of UK interest rates when it comes to returns. And these fluctuate. Today, it’s possible to obtain a return of around 4.5% a year from this type of account. But there’s no guarantee this kind of rate will be around for the next decade.

I reckon rates will probably average somewhere between 3% and 5% though. So let’s analyse potential returns for 3%, 4%, and 5% a year.

With the best-case scenario here, this could potentially turn £20,000 into £32,578 in a decade.

Investment returns

With Stocks and Shares ISAs, investors have far more control over their money. Because they can invest in mutual funds, stocks, gold, property, and tons of other assets.

Obviously, returns will vary depending on what one invests in. However, with a decent investment strategy and proper risk management, annual returns of 6-10% over the long term are very achievable.

Here’s what that looks like, starting with £20,000:

This table shows that with a Stocks and Shares ISA (and a sound investment strategy), a fair bit of money can be made over a decade.

A stock with potential

For those interested in generating high returns within a Stocks and Shares ISA, one stock that could be worth considering as part of a portfolio is London Stock Exchange Group (LSE: LSEG). It’s one of the UK’s largest technology companies.

Don’t be fooled by its name. Today, this company’s primarily a financial data company that sells information to banks and investment managers globally.

This stock’s taken a bit of a hit recently due to concerns that automation across the financial industry in the years ahead is going to reduce the number of licenses it can charge companies for it. I think this has created a great entry point.

At present, the stock trades on a forward-looking price-to-earnings (P/E) ratio of 19.9. That’s really low for a software company, especially one that has blue-chip enterprises as customers (who are unlikely to suddenly go bust and stop paying for data).

It’s worth noting that the average analyst 12-month price target is £122.46. That’s around 40% above the current share price.

Taking a longer-term view, I reckon this stock has the potential to deliver returns of more than 10% a year over the next decade when dividends are factored in. Because the company should be able to continually raise its prices.

Of course, there are no guarantees that long-term returns will be strong and automation at financial services companies in the years ahead is a key risk. I really like the risk/reward proposition though at today’s share price.

I’ve recently bought its shares and I’ll be holding them for the long term to compound my returns.

The post Here’s how much £20,000 in an ISA today could be worth in 10 years… appeared first on The Motley Fool UK.

More reading

• How much should you put in an ISA for a monthly passive income of £2,000?
• The UK’s favourite stocks are red hot… these FTSE shares may perform better
• How much money do I to put into need in an ISA for £1,000 in passive income each month?
• My highest-conviction FTSE 100 investment right now is…
• 5 FTSE 100 stocks I’m considering buying for my SIPP – and this one’s top of the list!

Edward Sheldon has positions in London Stock Exchange Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

See author's posts