How to Take Advantage of the First Home Saver Scheme

The Australian Government does not concern itself much with the affairs of young people these days – we have an aging population and the young person’s vote is not considered important, but every now and again, it throws a token gesture their way.

By this, I am talking about the First Home Saver Scheme, which commenced last Wednesday, the 1st October.
The stated purpose is to assist people, who have never owned a home, to save for their deposit. The full details and conditions of the scheme can be found here.

This scheme is accessed by opening a special First Home Saver Account with a participating bank or superannuation fund.

At the moment, all the First Home Saver Accounts offered by banks work just like interest-earning savings accounts, paying between 6-8% per annum on your account balance. In the near future, equity market-linked accounts will be offered by superannuation funds, allowing you to invest your savings in shares and other assets.

I see the main attractions as being:

  • You get up to $850 per year in free money from the government (you must deposit at least $5000/year to get the maximum) – equivalent to a risk-free and tax-free 17% return!
  • Interest you earn on money in the account is taxed at only 15% instead of your normal marginal tax rate (30% for most middle-income earners).

The main drawbacks are:

  • You have to deposit at least $1000/year for four years to be able to use the money as a deposit on a propery
  • If you buy a home before the 4 years are up, you can’t withdraw the money – your only option is to transfer the money to your super
  • You can’t yet use it for property bought at auctions

Even if you don’t plan to buy a home, you can still take advantage of the scheme to boost your super:

  • Each year, just deposit $5000 and you’ll get $850. This is useful for those of us who are ineligibile for the superannuation co-contribution scheme.
  • On the other hand, if you ARE eligibile for the super co-contribution scheme, you get can up to $850 on top of the $1500 maximum you are receiving from that scheme. e.g. up to $2350 per year!

Other reasons to participate:

  • Housing affordability may actually improve over the next few years as the credit crisis and slowing economy bite
  • Share prices are depressed, and regular investing over the next few years may allow you to pick up bargain investments at the bottom of the market.

For further Information:

The Australian Prudential Regulation Authority (APRA) have a list of institutions that offer First Home Saver Accounts.

The Australian consumer magazine, Choice, has a review of the current First Home Saver Accounts on offer.

The best deal at the moment, is being offered by AMP Bank, who are paying 8% per annum, paid monthly until the end of the year.

Disclaimer: I am in the process of applying for an account with AMP Bank, and I have a subscription to Choice Online. Other than that, I have no affiliation with any organisations named in this article.

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