Should I open a First Home Saver Account?

LCheapo333 on 11/06/2013 - 02:05

The features of the account:

  • For every dollar you deposit, the government co-contributes 17%, up to $6000. That's $1020 tax free.

  • Interest earned is taxed at a flat 15%.

  • To withdraw for purchasing a home, a minimum of $1000 must be deposited in 4 separate financial years.

That means if you deposit $6000 into the account on:
30th June 2013, 30th June 2014, 30th June 2015 and 1st July 2015, the government will deposit $4080 into your account.

Theoretically, this should appeal to any potential first home buyer who intends to buy after 1st July 2015, which should be a big portion of the population.

I can't get my head around why this isn't popular.
Am I missing something?
I want to eventually own my home.
Should I open this account?

Financial

Comments

  • feverz on 11/06/2013 - 04:22
    +1

    This link might be useful for others who want more info, its an overview on First Home Saver Accounts by the Australian Taxation office. http://www.ato.gov.au/content/00250962.htm

    Interested to hear responses too, hopefully someone from OzB has one of these accounts and can provide feedback.

  • Geewhizz on 11/06/2013 - 06:02
    +2

    I can't get my head around why this isn't popular.

    It's not really that well publicised and people just tend to forget it exists, I think. If you're not looking at buying a house in the next couple of years particularly, then you'd probably be crazy NOT to open one now. It's really better suited for people who are planning on buying 'some time' rather than 'soon,' because the money is tied up for 4 years, and cannot be added to (to maximise the Govt contribution) once a purchase has been made.

  • Waldo000000 on 11/06/2013 - 08:01

    We investigated these in 2009 (young couple) and decided not to open one. The pros were:

    1) up to $1020 per year bonus
    2) 15% tax.

    The cons were:

    1) we weren't paying much tax at the time anyway, so the 15% tax wasn't much of a tax break for us
    2) it would force us to delay buying a house for 4 financial years (though only about 2 years in reality)
    3) we would have been forced to spend the money on a house or transfer it to super (as opposed to e.g. investing it, or travelling, or spending it in an emergency, etc.)
    4) we would have been "locked in" to living in the house for at least 6 months of the first year after we bought it (this restriction applied in 2009, not sure if it still does)
    5) we would not have received the co-contribution if we moved overseas.

    I can't get my head around why this isn't popular.

    My guess is people don't like the sound of locking in their money for 4 years (though, it's really only 2 years as you pointed out).

    FYI, you might like to try this calculator.

    • Geewhizz on 13/06/2013 - 07:32

      My guess is people don't like the sound of locking in their money for 4 years (though, it's really only 2 years as you pointed out).

      Make that 3 years. The govt contribution is made at the END of the financial year. To receive that contribution for the final year, your account must still be open then, but the account is closed if you withdraw.

      It wouldn't surprise me if this grant was scrapped should we have a change of Govt, so if you're seriously contemplating opening one of these now might be a good time to do so.

      • Dacs on 13/06/2013 - 08:40

        A bit longer actually: The govt contribution is only made a couple of months after you have lodged your tax return for the financial year.
        From the page on the government contribution:

        Because account providers do not have to lodge their annual activity report until 31 October and we have 60 days to make the payment, many people do not receive their contribution until January the following year.

      • [Deactivated] on 13/06/2013 - 15:37
        +1

        Can you imagine if real estate prices go through the roof again? Three years later, someone abandons hope of owning their own home and the money has to go into their super. The government has plans to access everyone's super for "investing" in infrastructure. So after they build the next harbour tunnel to stuff that up, you may as well kiss the whole amount goodbye.

      • mick01 on 14/06/2013 - 10:05
        +1

        That's not correct Geewhiz. The government sends you a cheque for the co-contribution if you have closed your account already. So it is only 2 years (plus a couple of days) that you need to have the account open.

        On your other point; I doubt a new government will scrap this scheme. It's really not costing them much to keep it running — so few people are using it! The bad publicity generated would far outweigh any cost savings.

  • Waldo000000 on 11/06/2013 - 08:05
    +2

    Oh, also, worth knowing that you can't put any more than $90,000 in such an account. (balance cap]

  • PoundFoolish on 11/06/2013 - 08:18

    Thanks for all the info here, very helpful. I'm keen to open one before this year end. Any suggestions on the best financial institution to go with?

    • kobrien456 on 11/06/2013 - 08:35
      +1

      Looks like Anz and CBA no longer offer.
      http://www.savingsaccountfinder.com.au/savings-accounts/firs…

      • PoundFoolish on 11/06/2013 - 08:48

        Yeah, I saw that too. I think the best interest rate is by IMB, as of now.

    • [Deactivated] on 11/06/2013 - 08:55
      +3

      I've just opened one with ME Bank. I did my research about a month ago and I believe - out of those available to anyone - they currently offer the best rate (3.5% pa) in addition to the government's 17%. Some e.g. Teacher's Credit Union offer slightly better rates but have restrictions on who can join.

      APRA lists the ADIs that offer FHSA: http://www.apra.gov.au/CrossIndustry/FHSA/Pages/default.aspx. Just look them up (note that some no longer offer) and compare rates.

      It is possible to transfer your balance to another FHSA provider if rates become noncompetitive.

    • Danam on 14/06/2013 - 10:54
      +1

      If you pop $1000 in before the end of this month, you could wipe off one of the 4 required financial year installments straight away. Put the full $6000 in and score an extra $1020 that you would miss out on should you open the account at the end of the year. (I've been with MEBank since the start of this thing. A low 3.5%, but the other benefits make up for that).

  • kobrien456 on 11/06/2013 - 09:11

    4.2% if you have a relative who works in the Railway.

  • ajs900 on 11/06/2013 - 11:07

    Definitely open one, best account I have.

  • [Deactivated] on 11/06/2013 - 11:23

    Before this came out, the gov. sent out an online survey. People told them what they didn't like about it, but they didn't use a single suggestion. (Why bother sending out the survey!?)

    As I recall most of my reasons were:

    1. When it first came out, the amount you saved in tax was negligible compared to what you could earn from higher-interest online accounts.

    2. The amount you get "free" is quite small compared to the full price of a home. But while your money was locked in the account, property prices kept increasing. So the few thou$and earned was soon lost in several weeks of real estate price increases.

    Many still think it's not worth the hassle now, once the things below are taken into consideration.

    1. The money can't be withdrawn early if you see a home you want to purchase.

    2. The amount you can put in is limited.

    3. The amount the gov. puts in is limited.

    4. The tax saving is only on the interest earned. So if you were to put money into a normal high-interest account instead, the difference (how much you miss out on by paying more tax on the interest in a normal account) isn't worth the hassle to some, esp. considering you have to wait for the account term to expire before you can buy. (What happens if you see a home before then. The money locked in the account may be what you need to get you over the line.)

    One situation I can see where it IS of benefit, is if you know 100% you won't be buying until after the account period expires. The RBA has dropped interest rates several times now. Despite the media and RE agents frantically talking up real estate, the RBA teeters every month if they will or won't drop rates. So RE is still floundering. If the RBA drops rates again, a home loan may become so cheap (or already is!?), people would need their IQ checked for not buying before the gov. account matures.

    • one man clan on 11/06/2013 - 12:22

      Yeah I considered it a few years ago but the timing thing kills it - not only the fact that you can't withdraw early, but also what happens after 4 years if your finances don't work out, you can't find a house you like/in your price range? Does it have to go into your super? Or does it stay in that account until you can find something?

      • danyool on 15/06/2013 - 23:21

        Wait what? The timing kills it, but you haven't bought yet?

        The money stays in the account until you buy something or until you're 60 then transferred to super.

        • [Deactivated] on 16/06/2013 - 12:53

          Oh - it was my understanding you couldn't withdraw the money early even if you found a home to purchase before the term was up. Maybe I'm wrong.

        • Geewhizz on 17/06/2013 - 06:28

          You can't, and you also cannot add any further funds to it once a purchase has been made

  • Dacs on 11/06/2013 - 12:07
    +1

    It is also worth opening a FHSA if you have no intention of buying a house. Anytime after 4 years you can move the money into your super fund.

    Note also that the limits are per person, so if you have a significant other they can also deposit $6000 per year and get the 17% government contribution.

    • Waldo000000 on 11/06/2013 - 12:12
      +2

      To be precise, the limits are per account. source

      First home saver accounts can only be opened by an individual, so if you are saving with a partner you should each open an account. You will only have to wait until one of you reaches the 4-year savings mark to withdraw from both accounts, provided your house is bought in both your names. If you both have accounts, you will also both be eligible for the government contributions.

      • danyool on 16/06/2013 - 00:13

        But each person is only allowed one account - so basically that's the same.

  • plmko on 11/06/2013 - 16:48

    The biggest reason why you shouldnt put money into an account without knowing what youre doing is, once you put money in you can`t take it out except for buying property. If you change your mind, you must put it 100% in superannuation, of course you can draw it out again for another another account in the future.

    So if something happens in your life and you need access to your nest-egg….

    • danyool on 16/06/2013 - 00:14

      Don't put all your eggs in one basket…

  • Cheapo333 on 11/06/2013 - 19:53

    The main disadvantage pointed out in this thread is basically not being able to access your money if you decide to not buy and the 4 financial year holding period( 2 years 2 days).

    But the way I see it is as a full-time salary earner, surely you won't ever have to spend down to your last few hundred of thousand dollars, unless you are bad at managing your personal finances.

    Also a lot of people always complain about paying too much tax. Well, this is one way the government is redistributing the tax dollars, so might as well claw back some of your hard earned if you can.

    • Dacs on 13/06/2013 - 09:14

      2 years 2 days?

      • Cheapo333 on 13/06/2013 - 21:03
        +2

        30th June 2013, 30th June 2014, 30th June 2015 and 1st July 2015 is across 4 financial years, but on calendar is 2 years and 2 days.

        • tooblue on 13/06/2013 - 21:12
          -1

          But the government's 17% co-contribution for the 01/07/2015 amount won't be in the account until a few month after you lodge your tax return after 01/07/2016.

  • Jarr0d on 13/06/2013 - 18:31
    +3

    NOTE: If you have the account for say one year and purchase a house you can then at the end of the four years transfer the savings on to the mortgage. So you can't really say it will stop you from purchasing for four years. Even if you we're to buy a house tomorrow it would work out to set this up the day before you did.

    • danyool on 15/06/2013 - 23:23

      Initially that wasn't the case. If you bought early, you lost it to super.

      Also, depends on how much you've put into your account. If you've dropped $50k into this account, that's a big chunk that might stop you buying early cause you won't have access to it.

  • Danam on 14/06/2013 - 11:15
    +2

    I think the point about injecting your FHSA funds into a mortgage after 4 financial years regardless of when you buy the house is something that needed more publicity. This new rule was introduced 1 or 2 years after these accounts started.

    The Age recently had a write up on how bad these accounts are, citing the 4 year wait to buy as potentially causing people to miss out on a bargain property. I tried to respond on their website with information about the above policy change, and the fact that you can reduce the 4 year wait to 2 years and 2 days if you are smart about it - but they removed my post.

    Personally I've had a FHSA since its inception, and as of this year will have received $5k in co-contributions and another $5k in lower taxed interest. For the $38k I've put into it over 5 years, that's a pretty solid return. I still don't want to buy a house so it keeps paying $2300 a year on top of my own contributions. Just put in the max amount they co-contribute on (currently $6k) each year - and its a good way to build up a deposit.

  • modsec802 on 14/06/2013 - 21:59

    These accounts have many downsides:
    * Limited number of providers - so can't really shop around for best interest rate
    * If you have a partner who doesn't work (eg. stay at home Mum), they have a marginal tax rate of 0% so paying 15% tax on this account makes no sense

    • [Deactivated] on 16/06/2013 - 12:56

      Ah yes - that was the other reason. A partner that normally pays low or now tax now paying higher tax. Forgot about that one.

  • Magnate on 15/06/2013 - 18:17

    If you are ever planning to buy a house then it's a no brainer - get one. Doesn't matter if you end up buying your house in 2 years or 20.

    • danyool on 16/06/2013 - 00:15

      Even if you're not - another way to access bonus money for your super :-)

  • [Deactivated] on 15/06/2013 - 19:02

    Waiting for ME Bank to send me the welcome pack.

    To put money in, is it as simple as transferring online to a BSB and Account Number?

  • phancy on 15/06/2013 - 21:17
    +1

    Hey guys,

    From what I've read, I cant see any point in depositing any more than exactly $6000 a year because the co-contribution is capped at 17% a year. Am I correct?

    If so I should deposit 6k a year and invest any remaining savings in some other way..

    • Dacs on 15/06/2013 - 21:24

      It depends on what your marginal tax rate is, and what interest you could get in a non-FHSA.
      In a FHSA, tax on interest is fixed at 15% which may be an advantage to you. On the other hand you may be able to find a non-FHSA investment with a slightly better interest rate.

  • DealzEddy123 on 16/06/2013 - 19:38
    +6

    i got one with ME about 5 yrs ago . i think the biggest benefit for me was whenever i put money in it i couldnt take it out unless i bought a place. it was good for me because im a VERY impulsive spender so it helped control my spending and also i cant be bothered with other forms of investments (potential higger returns but much more effort) so now ive just bought my first home with the deposit i saved over 5 yrs. i opened my fhsa when i was 19 y.o

  • Balls on 23/06/2013 - 22:45

    …

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