The ISA turns 25 on 6 April 2024 and few would argue that the tax-efficient savings wrapper has been anything other than a raging success story. Something like 22 million Brits have one, attracting somewhere over £700 billion of cash and stock market investments since 1999. In the coming 12-months, ISA investors will save an estimated £7 billion in tax.

Hundreds of ISA millionaires are thoughts to have been created over those 25 years thanks to the powerful compounding mathematics of capital and income returns held over many years. Some of the most successful UK stocks since the ISA launch are household names, like JD Sports Fashion (JD.), Savills (SVS) and Next (NXT), others come from unheralded parts of British industry, such as technical parts distributor Diploma (DPLM) or Clarkson (CKN), the shipping broker.

If you invested £100 in each of those five companies on ISA launch day your investment today would be worth a combined £37,130. A £100 investment in each of the top 10 performing stocks would have turned your £1,000 into £58,970, based on SharePad total returns data.

Yet few of these best performers enjoyed much success in the ISA’s early years as the dotcom bubble popped, sending the UK’s benchmark FTSE 100 plunging from near 6,800 peaks to below 3,600 by February 2003. Plunging stock markets might have put off a generation of ISA investors. That it did not is in part due to the way in which the use-it-or-lose-it annual ISA allowance encourages regular saving through the ups and downs of the market cycle.

Today, the FTSE 100 index is trading just shy of 8,000, yet backing Britain’s blue-chip index has been a poor choice for investors. For example, a £100 investment in the FTSE 100 on 6 April 1999 was worth less than £120 on 2 April, poor compensation for a generation of stock market risk, although with dividends reinvested, the return would be a healthier looking £288.

The data draws out a particularly interesting point – just how difficult it is to identify in advance where the best returns will be found. In April 1999, Vodafone (VOD) was one of the UK stock market’s biggest companies, yet its performance over quarter of a century has been disastrous, with the shares losing roughly 80% of their value.

What the ISA will look like 25 years on from now is impossible to say, although there are some clear signposts. First, digital transformation. ISAs have become more accessible and user-friendly through digital platforms, giving engaged savers and investors options to focus on individual objectives, such as saving for a house. This engagement provides an opportunity to build on.

There is also greater investment choice than ever before, with international markets far more accessible than they were in 1999, a growing number of funds to choose from, including sustainable and ethical options, and a wider selection of low-cost ETFs that offer savers cost effective diversification. 

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