First home saver accounts

A new government scheme provides incentives for new home buyers, but watch for traps.
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Warning: Can you wait four or more (financial) years before buying your first home?

If you think you might be ready to buy your first home sooner, then don’t open a First Home Saver Account (FHSA). You won’t be able to withdraw money from the account for your deposit or mortgage repayments; the balance of your account will divert to your super fund.

Please note: this information was current as of August 2009 but is still a useful guide to today's market..

In brief

  • The government will contribute up to 17% of what you save into a First Home Saver Account.
  • Interest is taxed at a low rate of 15%.
  • Banks and other financial institutions will pay interest too. The best rate was 6% per annum at August 2009, and that's in addition to the government's 17% contribution.

To provide incentives for people to save for their first home, the federal government launched the first home saver account (FHSA) scheme in October 2008. Accounts may be offered by banks, building societies, credit unions, life insurance companies and public offer super funds (not self-managed super funds). They’ll set their own fees and interest rates, but have to comply with the government rules for the scheme.

To be eligible to open an account you must be at least 18 years old and under 65, have a Tax File Number, and never have owned a home you lived in (you could, however, have owned an investment property if you meet the conditions).

CHOICE benchmark for deposit FHSAs

Banks, building societies and credit unions have already started to offer deposit-style FHSAs, similar in most ways to ‘normal’ savings accounts. We’ve set a benchmark for the minimum standards we think you should look for from deposit FHSAs. Some of the accounts that fall just short of the benchmark can still provide good returns, but this standard is a guide to accounts that tick all the boxes — for being simple, fair accounts with a comparatively high interest rate:

  • Interest rate that matches or exceeds the Reserve Bank cash rate (3% at August 2009).
  • Fair and simple interest (no tiered interest rates, for example).
  • No account keeping fee.
  • No switching fee.
  • No fee to make deposits.
  • No minimum deposit or regular savings requirement to get the full interest rate.
  • Interest calculated daily and compounded monthly or quarterly on the full account balance (monthly is better).

The table shows how the accounts available so far compare on these criteria. Even after opening an account, you should continue to monitor how it compares with others – you can switch to another FHSA provider if your interest rate becomes uncompetitive.



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