04.Investment style accounts
The legislation allows for two distinct types of FHSAs: deposit-style accounts, which are like a traditional bank savings account (see deposit accounts) and investment fund FHSAs.
No investment FHSAs have been launched yet, though Trust Company Superannuation Services Limited, regulated as a Registrable Superannuation Entity, is licensed to offer FHSAs. Investment style FHSAs are likely to more closely resemble managed funds or super funds than deposit accounts, and come with the associated risks. Providers may offer different options that have a range of risks and expected returns – for example, a ‘conservative’, ‘balanced’ or ‘growth’ option, just like your super fund. The value of such ‘market-linked’ investments can go up and down.
You might be comfortable with the risk in the expectation of better returns, particularly as FHSAs are a medium- to long-term investment. However, before choosing an investment FHSA pay particular attention to:
The investment strategy. Treat your FHSA like any other investment; find out where your money will be invested, including aspects such as the proportion in riskier ‘growth’ assets like shares and property, and in safer assets like deposits and fixed interest.
Returns may be uncertain. Your investment FHSA might lose money and leave you with a lower deposit than you’d have with a safer option. On the other hand, it might provide better returns. You need to check out the type of investment. If the account invests in shares and property funds, expect fluctuations. If share prices fall, the balance of your savings and even the government’s contribution would fall too. Investment FHSAs may also provide guaranteed or secure options.
Fees. Check the establishment fees, entry fees, annual management fees, running costs and exit fees. High fees take a chunk out of your returns. You might be charged a management fee of 1.5% of the full balance (not just the interest or growth) of your account every year. And with some (non-FHSA) managed funds, entry fees of up to 5% of every contribution consumers make is creamed off as an entry fee.
Are commissions paid to financial advisers? With non-FHSA managed funds, entry fees may be shared with the financial planner who recommended investing in the fund. We don’t know if the same commission arrangements will apply to investment FHSAs as none have been launched yet, but it’s worth watching out for.