How the £10,200 ISA limit can help make you rich

The current ISA limit amounting to £10,200 for 2010/11 will enable stock and shares ISA account holders to build up a tidy sum from which they will able to draw income tax free.

Unfortunately, most ISAs are used to save cash, and as interest rates are very low there’s not much return. That's not the best way to use your ISA!

The importance of using your ISA entitlement to the ISA limit

I believe ISAs are an incredibly important tool for UK investors, because of how they enable you to shield all capital and income gains on investments held in your ISA from tax.

Over the long-term this will really add up, particularly if you are a higher rate taxpayer and when you use the entire allowance to the ISA limit of £10,200 currently.

Instead of a lump sum, for those who prefer to pay into their ISA every month, you will have find £10,200 / 12 = £850 a month.

After several decades you could easily have a six figure stock and shares portfolio in your ISA generating tax free income.

Example

Let’s suppose you’ll be able to save £850 a month and the stock market delivers an average annual return of 8 per cent return over the next two decades;

after 20 years at 8 per cent you’d have almost £490,000!

The good news in the 2010 Budget is the ISA limit will increase annually with inflation.