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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