by Scott Pape -
Dear Scott,
Love reading your articles in the Herald Sun.
Thought I’d ask a question about the First Home Saver Account (FHSA), which banks offer this account?
I asked at the Bendigo and Westpac they said they didn’t know what i was talking about, both my children have money invested for hopefully a house which is nearly due..
Many thanks,
Barb
Hey Barb!
Thanks for getting in contact.
First Home Saver Accounts (FHSA) are offered by a range of institutions (but not from Bendigo or Westpac, which explains their blank stares).
The best FHSA we’ve manage to track down at the moment is offered by Members Equity, which is currently paying 5.0 per cent (as at 10/01/12), with no bank fees.
In addition to this the government pays a 17.00% p.a. contribution on your first $5,500 saved in each financial year (which effectively means that you could be earning 22.5 per cent on every dollar up to $5,500 – not bad!), and earnings are taxed at 15 per cent rather than your marginal tax rate.
The only drawback of these accounts is that you must save at least $1,000 a year for a minimum of 4 financial years. Thankfully the government recently relaxed the rules, allowing you to use the funds in your FHSA to pay off your mortgage if you buy your first home before those 4 years are up.
Remember, that you’re not locked in to a provider – so if another FHSA increases their rates, by all means be a rate tart!
For more information check out ASIC’s First Home Saver Page, including their nifty calculator to see whether opening a FHSA is right for you.
Best,
Scott
The Top First Home Saver Accounts
ME Bank – 5.00% pa with no bank fees (+ govt. interest)
Teachers Credit Union – 4.75% pa with no bank fees (+ govt. interest)
*as at 10/01/12
Want to find out more about First Home Saver Accounts? Watch Scott’s Tribe Talk video on FHSA by clicking here.
Photo: http://www.flickr.com/photos/ericmay/4817484054/
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32 comments
Just a hint for all – if you’re looking to contact the Tax Office about the FHSA you can’t get through through their standard numbers…
You need to call 1300 788 069 and it’s a damn site quicker to get through to someone too!
Additionally, you can get to the tax office’s ‘common questions’ page at: http://www.ato.gov.au/individuals/content.asp?doc=/content/00154317.htm&pc=001/002/066/010/001&mnu=&mfp=&st=&cy=1
Hi guys, I’ve had an account with Members Equity since the FHSA first come out and they’ve been wonderful. Originally the interest rate was 8% – hope to see those days again! I’ve been watching what other banks have been doing rate wise since I opened this account and at no stage have I seen any other institution beating their rate. I check myself by going to each of their websites or calling, every time there is a rate change. Annoying, but can make a large difference to the end balance, so worth it.
I had the same experience with banks as Barb. They had no idea what the account was and tried to get me to take a home loan. I ended up explaining to them what the account was for!
After several hours of searching on the net to find a list of banks offering the account, I am not surprised that the take-up of the account has been very slow.
I can only presume that the banks don’t think that the account increases their bottom line, and are therefore not bothering to promote.
As I am trying to get an account for my 18 year old son, I’d like the banks to know that the provider that ends up with his account, will most likely end up with him as a customer for their home loan, and that feeds on to his general banking needs.
Offering this account should be a high priority PR exercise for the banks.
I just thought I’d chime in on this – I agree that ME is currently offering the best deal for FHSA – which is why I have one.
Unfortunately, when I called their centre to ask them about it – the guy tried to tell me that there wasn’t any restriction to withdrawing from the account! And that the account was ‘capped at $5 000′ per year!!!
After some gentle insistance that he may want to verify his facts, he proceeded to say that ‘they’re always changing the rules on this accounts’… I didn’t have the heart to tell him that I was pretty damn sure there’d always been restrictions!
After which he finally looked up the ATO website with me while I was on the phone…
So, frankly, a bit disappointed with the level of expertise… but still obviously the best account, term wise, on the market.
Hi Scott,
Can you explain why the government gives a bigger contribution to those earning a higher wage? I don’t understand this, If you’re earning less than 80k you get 15% on 5,000 but if you are earning over 80k they pay 25% ? Any ideas about this?
Sallie where do you get the idea people earning over 80k get 25%??
Its just 15% for everyone.. http://firsthomesaver.com.au/facts/how-does-it-work
Im sticking with ME for the highest interest rate even if they have no idea how it works.
It is interesting to hear that banks have no idea about FSHAs.
Hey everyone. I have one quick question about FHSA’s. Can my partner and I open two seperate accounts and then put these towards the purchase of the same house?
Elliot -
Yes! You can, provided you both meet the criteria to have a First Home Savers account of course.
An added bonus is, if you both have FHSAs, only one of you needs to have met the withdrawal criteria in order for BOTH of you to use your FHSA towards a first home.
Naturally, you shouldn’t just take my word for it though. Give the Tax Office a call on their FHSA line at 1300 788 069.
Cheers mate,
Dan
hey, wish I’d heard about this whilst I was saving! I’m a bit behind here but just wondering if anyone knows of any government savings incentives after you have purchased your first house so as to pay off the mortgage quicker…I guess once you’ve bought the house its over to you…?
Scott
Thanks for all of your articles and comments. Whilst I dont always see eye to eye with your investment point of views, I always read your articles as they do make me think about financial issues. I am a university student in my financial year of a Finance & Financial Planning degree. I have spent the last three years saving to pay off my HECs debt and getting the 20% discount (just before the Gillard Government reduced it, bloomin’ Labor!), but now I am in a situation where I have to seriously consider what I should do next i.e. investments, super, shares, property, gold, insurance. So thanks for reminding me about the FHSA as I totally forgot about it! I will need to do some number crunching (probably after I finish my exams in October) and create my own plan to figure out what I should do next. The super 100% cocontribution was a priority, but the FHSA will probably be on the agenda as well. Thanks again Scott for your hard work
Forgot to mention that I did fully pay off my HECs fees in June this year, something that I am extremely proud of!
hey chris
Watch “Inside Job” about the American financial crash…then repeat after me, ‘i will never become an american finance advisor’, repeat as many times as it takes to make sure you don’t sell yourself to the instituitions.
I love your stuff. I have a question. I am keen to have my son open a FHBA but your point about ‘only’ paying 15% tax on the money I dont think refers to him as being only on $25K a year, I doubt he pays more than that Tax Rate anyway. He is 25 lives at home and I make him pay ‘board’ which is really his Savings. Now I have been putting it into RaboDirect. With his income level is it worth him doing this? Getting a FHSA. I make sure he puts a $1k each year into his Super to get the Govt bonus – which he gets the max because of his level of Income.
CBA dropped this account because NOBODY and I mean NOBODY at any branches (3) of CBA that I went to, knew anything about this account. The ANZ have stuffed it up as my 2 daughters have been genuinly putting ALL their funds into the account beyond the $5500 max that the govt pays 17% on and the ANZ charge 15% “tax” on the entire balance. The scheme is failing because beureucrats set it up without thinking it through as per usual.
Pat – there is no restriction to say you cannot put more than $5,500.
You just will not get a 17% govt contribution on anything past the $5,500 mark. you could put in $20,000 for all they care. OF course the overall account level was capped at 75k from memory before, this was when the govt contribution was capped at a $5,000 level. I think with it being $5,500 now they have also increased the total amount you can have in the account to $80k.
So yes, there was nothing wrong with your daughter’s bank.
Hey Pat,
To add to Warren’s comment, the 15% tax is charged on the ‘income’ generated from the interest. Not sure if this is the 17% PLUS the ~5% interest, or just the ~5% but it means you should get a better deal than your top marginal tax rate
Hi there,
Does anyone know if you can switch bank providers for the FHSA? I am currently with Commonwealth Bank as this was the only provider at the time I opened the account, in the town that I lived in. I would like to be with ME money because of the higher interest rate! I can’t find any information regarding this on the website?
Hi Scott,
Where does the savings from the FHSA goes to if I’m buying a property and having it on an interest only paying mortgage?
Comments appreciated
Can we still use a FHSA if our intention is to buy a block of land and build our first home on it?
Hi,
I have an FHSA with ME bank and they told me that once i reached the 5k mark i could use it for a deposit on a block of land or for a home but from what i’m seeing here you have to have the account for 4 year i wasnt told this at all!! is there any tax fees or fees you will be charged if you withdraw from the account earlier then the 4 years please help!!
there is no option for you to withdraw this money prior to having the account open for 4 financial years. this is not 4 years, its 4 financial years. if you choose to close this account prior to this your money will automatically be transferred to your superannuation account.
Over and above the 5.5k should our money go Into fhsa or an account with a higher rate?
Over and above the $5500 does it make sense to use this as a savings account because of the 15% tax rate on interest, even though the interest rate (say 5%) is less than the top high interest online accounts?? I’m thinking yes??
Over and above the $5500 does it make sense to use this as a savings account because of the 15% tax rate on interest, even though the interest rate (say 5%) is less than the top high interest online accounts?? I’m thinking yes??
Depends on your marginal tax rate. If your income tax rate is 15% then you can get better deals after the tax with RaboDirect and UBank. If your income tax rate is 30% or more than the FHSA is a better option.
Does anyone know if a first home buyer account can be used to buy your first “live in” property (i.e. after you have previously owned an investment property this would be the first property you actually live in and own), or is this against the rules…..?
That is not allowed under the legislation, you are classed as already owning your first home.
Hmmmmmm, be careful everyone.
■If you buy your first home before the 4 year period is up, you can withdraw the money in your account at the end of the 4 year period to put towards your mortgage (no earlier).
NOTE – You will not be able to make any more deposits once you have built or bought a property. (WHich means no extra govt co contribution)
Refer to the money smart website for further details.
Hey scott, I recently lost my job, anyway, my question is this:
the ‘concessional’ 15% tax on interest is great!… if your marginal tax rate is higher than 15%… what if it isn’t? do you get the tax back that the bank automatically debits, at the end of the financial year?
Over and above the $5500 does it make sense to use this as a savings account because of the 15% tax rate on interest, even though the interest rate (say 5%) is less than the top high interest online accounts?? I’m thinking yes??