How to get an extra $935 each year towards your first home

Do you know about the government’s First Home Saver Accounts?

First home saver accounts are designed to assist Australians 18 years and older to save for their first home. The accounts are offered by a range of banks and credit unions. The first home saver account is a government initiative designed to compliment the existing First Home Owners Grant scheme.

Features of First Home Saver Accounts:

• The Australian Government contributes 17 per cent on the first $5,500 (indexed) of individual contributions made every year. For example, if you contribute $5,500, the government will contribute $935.
• A minimum of $1,000 per year over four separate financial years must be deposited before funds can be withdrawn for the purpose of buying a property
• Interest earned is taxed at the low rate of 15 per cent
• Withdrawals from the account are tax free when they are used to purchase a first home to live in
• No minimum annual deposit is required to keep the account open
• First Home Saver accounts can remain open until you are 65 at which point they must be closed
• Withdrawals are not allowed from the account except for the purpose of buying a first home.
• Make personal contributions of at least $1,000 for each of four financial years (not necessarily consecutive years) before you can withdraw your money.
• An account balance cap of $85,000 exists (indexed annually), after which interest is still paid to increase the balance but further contributions by the account holder are not accepted

First Home Saver Account Restrictions

In May 2010 the government announced amendments to some of the restrictions on the account. Borrowers who open a FHSA but purchase a property within the first four years will now have their funds credited to their home loan account tax free rather than their super at the end of the four year minimum period. Savings will still be credited to the account holders superannuation account should a property not be purchased for owner-occupation, such as an investment property. These changes have been legislated and were introduced recently.

Compare First Home Saver Accounts

If you are considering opening a FHSA, it pays to do your research beforehand. There are currently 19 institutions in Australia offering FHSAs and their offerings will vary. The main differential is the interest which they apply to the account above the government contribution. At the time of writing the range of interest was 0-5%, which can equate to a difference of $1250 worth of interest earnings on a $25,000 deposit.

Source:  CANSTAR

Your experience with the First Home Saver Account

• What has been your experience with the First Home Saver Account?
• Did you know about it before reading this blog?
• Are you using it?
• Did you know about the different interest rates available?