As long as you understand the restrictions and eligibility criteria for opening and maintaining the First Home Saver Accounts and you are comfortable with a time frame of at least 4 years, then there are a number of MoneyGeek tips that will help you get the most from this scheme and help you get more savings for your first home!
First Home Saver Account – Tip 1 – Go for the Double Dip!
Buying your first home with a spouse or partner? If so, open 2 accounts! This is the easiest way to save more under the First Home Saver Account scheme. Accounts can be opened individually and the co-contributions are paid on this basis.
The Government will pay you as an individual 17% of your personal contributions up to $6,000 meaning you get paid an extra $1,020.1 By opening 2 accounts means this is doubled! Yes it is legal and yes it is legitimate – the government even promotes running the First Home Saver Accounts in this manner.
MoneyGeek Extra Tip: Not that we want to plan for relationship breakdown but opening two accounts individually as a couple provides a small amount of personal money protection. If a relationship did break down – this account cannot be separated and can only be used to purchase a house or get rolled into the account owners superannuation.
First Home Saver Account – Tip 2 – Shop Around!
The MoneyGeeks still have day jobs and in our day jobs we frown when we still see people take lower savings rates or higher loan rates because of some unexplainable loyalty to an institution that is clearly not giving a good deal! MoneyGeek did a quick analysis of the providers that offer this product and there was a massive 1.65% difference in the interest payable! Interest is not everything, some accounts may have fees and charges or extra conditions, so read the Product Disclosure Statements, not matter how boring! They will help prevent nasty surprises later!
Keep on top of your account, you do not need to stay with the one provider, if someone is giving you a good rate this year, but someone better next year, move your account.
MoneyGeek Extra Tip: Who offers the best2 First Home Saver Account? We are good to our readers… taking all the hard work out of comparing interest rates! The Police Bank has won the Money Magazines Best of the Best award for best First Home Saver Account offering a before tax interest rate of 4.15% (as at 24/02/14) on their FHSA’s. The average before tax interest rate across the providers we compared was 3.21%3 We do not recommend particular providers, so read the terms and conditions and do your research.
First Home Saver Account – Tip 3 – Don’t go OTT on the accounts!
So yes we said open two accounts to maximise your co-contribution, but remember you will get the maximum benefit of $1,020 if you contribute $6,000. If you contribute more, you still only get the $1,020. This is worth looking at further as there are a few competing factors here. On one hand, if you contribute everything into your First Home Saver Account you get no extra contribution for any deposit you make over $6,000 in a year, however if you put your extra dollars into a regular savings account, your interest is taxed at your marginal tax rate.
So what interest rate do you need to be able to achieve outside of the First Home Saving Account scheme to be at least as well off?
Using the example of the Police Bank’s interest payable, the before tax rate is 4.15%. With a 15% interest rate that is deducted internally as part of the account, this provides an after tax interest rate of 3.53%.
$0 – $18,200
$18,201 – $37,000
$37,001 – $80,000
$80,001 – $180,000
Non FSHA Before Interest Tax Rate needs to be
To give an after tax interest rate of
Due to the income tax impact on savings, the higher your income, the higher the interest rate you need to obtain to get the same after tax rate as what you can obtain in the First Home Saver Account. So how do you work out if a non-FHSA interest rate is will give you more after tax interest than a FHSA? Easy!
Step 1 – Find your income level in the table below
Step 2 – Times the Non FSHA savings interest rate by the percentage below (e.g. 5% x 88.61%)
Step 3 – If the result is higher than the before tax FHSA interest rate, then consider placing any savings over $6,000 into the non-FSHA account. If it is lower, consider placing the excess in the FSHA.
$18,201 – $37,000
$37,001 – $80,000
$80,001 – $180,000
By using the MoneyGeeks simple First Home Saver Account tips, you may not get in your house sooner (we can’t help you get around the laws that dictate the minimum time frame!) but you can increase the amount you save for your home with little effort! Remember, the more you save for your house, the easier to loan application process and the less you will pay in Lenders Mortgage Insurance (save enough and you will pay none!).
2014 Federal Budget Update: It has been announced in the 2014/15 Federal Budget that this scheme will cease from the 13th May 2014. Although simply at this stage a proposal, this scheme has been earmarked for closure and it is probably not a good idea to open!
Have any First Home Saver Account Tips that you want to share with your fellow MoneyGeeks? Post your comments below!
1 This amount is indexed annually and is current for the 2013/14 Financial Year.
2 Best is best to us and may not be best to you! Read our Terms and Conditions regarding the use of certain terms on our site.
3 AMP, Credit Union SA, Hume Building Society, Hunter United Employees’ Credit Union, IMB, Members Equity Bank, Police Bank, Bank Victoria, Railways Credit Union, Teachers Mutual Bank, Victoria Teachers Mutual Bank, Wyong Shire Credit Union – rates obtained 24/02/2014
About the Author – The Money Geek
The Money Geek is the head money blogger for MoneyGeek.com.au. With over 8 years experience in the finance industry, the Money Geek provides information over a range of topics to help families Australia-wide improve their financial literacy to become their own geeks and take control of their financial future!