"Personally, I tend to worry about what I save, not what I spend." - Paul Clitheroe
Update: May 2014
As of the 2014 Federal budget, the government has announced they will be closing the FHSA to try to get some budget savings. Those that created their accounts before the announcement can still get their bonus for this financial year, but the account will automatically lose the benefits and withdrawal conditions from 2015. (the previous 4 year holding rule)
As of the 2014 Federal budget, the government has announced they will be closing the FHSA to try to get some budget savings. Those that created their accounts before the announcement can still get their bonus for this financial year, but the account will automatically lose the benefits and withdrawal conditions from 2015. (the previous 4 year holding rule)
For those saving up
for a house and have a few years (at least 2 – 4+ years) to save up - you
cannot beat this savings account in terms of high return and low risk profile.
I highly recommend you
look into it. This account is so good that I am making a separate post for it.
You have to be sure
you will buy property sometime down the track, it doesn't have to to be in 4
years, if you need more time, that's fine, however note that you can't touch
the money after the qualifying period unless you use the funds to buy your
first property. If you don't, the money will be sent to your superannuation
balance.
§ This is separate from the First Home Owners
Grant. If you are eligible for that, you still get that in addition to the
earnings on this account.
§ You will get a guaranteed 17%
interest for every dollar you put into the account up to $6000.
The maximum government co-contribution is $1020 for each financial year
(indexed, so the figure will increase over time). This year, if you put in
$6000, the government will add $1020. You can contribute more if you like, but
only the first $6000 is eligible for the government’s 17% co-contribution.
Obviously
you can put in more, its just that the initial $6k will get the special 17%
return, but this is each financial year. $6k should be the bare minimum.
§ The government contribution will be received
in the financial year after you lodge your income tax return and the FHSA
provider files its reports with the tax office.
§ You still get interest from the bank on top of
the government 17%.
§ 15% tax applies to the interest or growth of
the account, but not the government contribution part.. Tax is paid by the
account provider.
§ You must keep the account open for at least
four separate financial years (they don’t have to be consecutive years) and contribute
at least $1000 each year before withdrawals can be made. 4 financial years does
not mean 4 years. It can theoretically be 2 years and 2 days if you time it
perfectly. For example.
Year 1: Deposit $6k 29
June 2013
Year 2: Deposit $6k 29
June 2014
Year 3: Deposit $6k 29
June 2015
Year 4: Deposit $6k 2
July 2015
Total real world time
elapsed 29 June 2013 - July 2015 (just over 2 years)
When you actually
deposit the maximum amount that can is eligible for co-contribution, whether
right away or all of it just before the cut-off period depends on your marginal
tax rate.
If you were on a low
tax rate, say 15% or less, then you may be able to get higher interest rates
outside of the FHSA, such as online savings or shares, and then dump the
earnings into your FHSA before the cut-off. But what if your marginal tax rate
was 40%. If you received 7% interest from online savings, your after tax return
is actually (7% x 0.6) = 4.2%. If the FHSA account provider was paying 5%,
then if you put the funds in your FHSA, your after tax return is (5 x 0.85) =
4.25% - higher than what you would achieve outside of the FHSA environment. In
this case it makes sense to deposit your funds periodically throughout the
year.
Of course, it is
easier said than done to consistently save money. Some may find it hard to save
a large amount of money as it is too tempting to use. In that case, I would
recommend you periodically set aside money from each pay packet to be sent to
your FHSA. Divide $6k or however much it is by the frequency of your paypacket
to gauge how much you should be setting aside for savings. eg $6000/12 monthly
=$500/month for those that get paid monthly.
Purchase first
property 10 July 2015 and able to transfer 4x $6k deposits + 4x $1020
(even more due to it being indexed each year) + 4x interest from the bank
for each of the 4 years.
§ The maximum account balance is currently
$90,000 (including any government contributions, interest earned, your savings,
etc). The figure will be indexed over time and can increase in $5000
increments. Once you hit the max cap, you cannot deposit anymore. $90k is 20
deposit on a $450k house/unit, but you need to factor in any potential stamp
duty and other legal fees.
§ You can only withdraw money to buy or build
your first home. If you close the account for another reason, its balance is
automatically transferred to super. Withdrawals after four years to buy a home,
or transfers to super, are tax-free. You cannot make partial withdrawals, it
has to be the full balance.
From the ATO website:
Income year
|
Contribution threshold
|
Maximum government contribution
|
2013-14
|
$6,000
|
$1,020
|
Income year
|
Account balance cap
|
2013-14
|
$90,000
|
2012-13
|
$90,000
|
Still not convinced?
Here is a very simple
example.
The following graph is
from NAB’s savings calculator
Assumptions: Start off
with $500 right now. Put this in online savings. For the next 5 years (that is
60 months), we are going to save $500 a month every month for 60 months, and
let this earn interest at 5% compounded monthly. Total cash deposited $30,500, the rest is the
interest we made. At the end of the rainbow, you have saved $34,644.72. Not too
shabby right? However this is before tax, so you will have to minus out the amount
you paid in tax as well over the 5 years.
Now, what if this was
the FHSA?
Again, $500 initial
deposit, ongoing $500 a month, every month for 60 months. Total deposit again
$30,500. The difference this time is that for each financial year you put in
the $6k deposits, the government will co-contribute $1020 (indexed each year).
That’s at least an extra $4080 over 4 years, even more because you earn interest
on the contributions too!
So lets just add up
the contributions made to the account, NOT EVEN ANY INTEREST we made on the
account. $30,500 + 5*1020 = $35,600.
Without any interest being even factored into the equation, you can see that
the FHSA has eclipsed the savings of the ordinary savings account.
Change your mind? What
were you thinking? Well there is a Cooling-off period
Each first home saver
account comes with a 14-day cooling-off period. This means you have
14 days to change your mind, close your account and get any contributions
back. In this circumstance you are still eligible to open another first home
saver account in the future.
First home owner grant
You can still apply
for a first home owner grant if you decide to open a first home saver account.
However, being eligible for one doesn't automatically mean you're eligible for
the other - there are different rules.
Some of the FHSA
account providers include: (Interest correct as of Dec 2013)
IMB 3.82% interest
ME Bank 3.25% interest
Hume Building Society 2.5%
interest
AMP 2.5% interest
Total List of Approved
FHSA providers as per APRA
Under the legislation
FHSA providers could commence offering FHSAs from 1 October 2008. Authorised
Deposit-taking Institutions and Life Companies that are providing FHSAs
(according to their websites and by contacting their customer service centre)
are listed below.
·
AMP Bank Limited - ABN
15 081 596 009
·
Australia and New
Zealand Banking Group Limited (note) - ABN 11 005 357 522
·
Big Sky Building
Society Limited (note) - ABN 30 087 652 079
·
Commonwealth Bank of
Australia (note) - ABN 48 123 123 124
·
Community CPS
Australia Limited (note) - ABN 15 087 651 143
·
Defence Bank
Limited (note) - ABN 57 087 651 385
·
Hume Building Society
Ltd - ABN 85 051 868 556
·
Hunter United
Employees' Credit Union Limited - ABN 68 087 650 182
·
IMB Ltd - ABN 92 087
651 974
·
Members Equity Bank
Pty Limited - ABN 56 070 887 679
·
MyState Financial
Limited (note) - ABN 89 067 729 195
·
Police Financial
Services Limited - ABN 33 087 651 661
·
Railways Credit Union
Limited - ABN 91 087 651 090
·
Teachers Mutual
Bank Limited - ABN 30 087 650 459
·
The Police Department
Employees' Credit Union Limited - ABN 95 087 650 799
·
Victoria Teachers
Limited - ABN 44 087 651 769
·
Wyong Council Credit
Union Ltd - ABN 29 087 650 897
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