Friday, January 13, 2012

Saving up for your first home? Want to help your kids get there faster?

Someone recently reminded me about First Home Saver Accounts (FHSA) on Twitter, and it got me thinking about the many many irate customers I have had at work. I have been cursed, sworn at, and generally crossed off the Christmas card list of many, many customers because of these accounts.

They are a FANTASTIC place to accumulate your money while saving for your home. I am a huge fan, and when Miss M is 18, I plan to encourage her to open one. Depending on hers and our circumstances we may even contribute/co-contribute to help her get her first home.

But you need to go into this account with your eyes open. Here is a quick run broken into the positives and negatives (as I see them).

Pro's
These accounts tend to have a very competitive variable interest rate
The federal government will contribute $0.17 for every dollar you deposit up to a maximum deposit of $5,500 (although you can contribute more if you want, it is likely that you will recieve a higher interest rate on an online savings account for the additional deposits over $5,500). This usually means a return of over 20% including the banks interest on the first $5,500.
If you buy a house with another first home buyer, each of you can use your own FHSA accounts towards the purchase.
Interest earnings on the FHSA are only taxed at the low rate of 15%. Government contributions and eventual withdrawals are not taxed at all
Money is locked away where it can't be spent on those impulse buys!

Cons
MUST make a minimum of $1,000 deposits EVERY year for FOUR financial years. They do not have to be in a row. If you miss a year, you can do it the next year, it will just take longer to get to the 4 complete year mark. You can pay $1,000 on the 30th June, and then another $1,000 on the 1st of July and that will count as 2 separate years. You don't have to pay $1,000 at once, it can be accumulative over the financial year (1/07-30/06).
For first home buyers only
Account can only be in one name
Max age for holding the account is 65
If you change your mind or find you need the money you have saved it can only be rolled into your Super. Unless you are aged over 60 in which case the money can be withdrawn. There is no-one to appeal to regardless of how desperate your circumstances are!
If you are ready to buy a house BEFORE you have saved the required $1,000 each financial years (x4) you can only:
a/Roll them money into super
b/Continue to meet the requirements and the money can be put towards your mortgage once you save the $1,000 each financial year (x4)
c/Use the money for the purchase if you are buying with another FHSA account holder who has met the requirements

The most heartbreaking scenario is the one with the customer who desperately needs the money - funeral, medical, etc - but cannot access it. The ombudsman can't help. The bank can't help. The federal government wón't help. Threats, complaints, persistancy, nothing will get your hands on that money. So go into a FHSA with very clear idea's about how you will manage your money to meet lifes expenses.
There's also a very clever little loophole scenario there for older people who have never owned a home before. If you open these accounts you can take advantage of the government contributions and take your money back as a lumpsum when you are over 60 (max age 65). Given the low tax rate on returns and the additional contributions this can be a way to make the most of your money.

For more information, Canstar has some good facts, also the governments Moneysmart website. You should also seek professional advise when making decisions about your finances - I am not a professional and am not qualified to give advise.

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