First home saver account
 | If you're saving to buy or build your first home then a first home saver account may suit you. You could take advantage of a government contribution to your savings and a lower rate of tax on your interest or earnings. |
FIDO's first home saver checklist can help you decide if this is the right way for you to save for your first home.
Use the first home saver account calculator to work out how to reach your savings goal and compare accounts. You can also check out the Australian Tax Office information about first home saver accounts.
What is a first home saver account?
A first home saver account is a special way of saving to buy or build your first home in which your savings attract a government contribution. First home saver accounts became available from 1 October 2008.
Unlike an ordinary savings account or investment, you can only use the funds in this type of account to buy or build a home that you will live in, and only after you have saved for at least 4 financial years.
Main features of first home saver accounts
- Your savings are matched by a 17% government contribution on amounts up to $5,500 in a financial year. For example, if you contribute $5,000 this financial year, the government will top up your savings with $850.
- Low (15%) tax on interest or earnings
- Interest or earnings on your savings from your financial institution.
| TIP! | Unlike ordinary savings accounts, you can't take money out of a first home saver account whenever you want.
If you don't use the savings in your account to buy or build a home that you will live in, you must transfer them into your superannuation fund. Except in limited circumstances, you cannot access your super before you retire. Therefore when deciding whether this type of account is right for you, think about your future financial situation and how this might change. |
Are you eligible?
A first home saver account is only for first homebuyers who are planning to buy a home in 4 or more years time. The first home saver account calculator can help you check if you are eligible.
You can only open an account if you:
- are at least 18 years and under 65 years
- have never owned a home in Australia in which you have lived. If you have owned an investment property that you have not lived in, you may be eligible
- have never opened a first home saver account. You can only have one first home saver account (except in some limited circumstances) but you may move your account between financial institutions, and
- can supply a Tax File Number and other proof of identity.
Penalties apply if you open an account and are not eligible to do so. If you are no longer eligible to hold an account you must close the account and transfer the money into your super fund.
Alex's story
Alex who is 26 is renting a house. She already has some savings and hopes to buy her first home in about 5 years. She figures out that she can save $60 per week (about $3,000 per year). Alex decides to open a first home saver account and using the FIDO calculator works out that the government will contribute $530 toward her savings in the first year. |
Features of first home saver accounts
Your savings are matched by a 17% government contribution on amounts up to $5,500 you save during the 2010-2011 financial year. That is, the government will give you up to $935 a year. The $5,500 limit will be indexed over time.
Also, interest or earnings on your account are taxed at a low 15% rate. The financial institution you have your account with pays this 15% tax so you don’t include first home saver account interest or earnings in your tax return.
What about the First Home Owners Grant?
You may still be eligible for the first home owners grant as well as have a first home saver account.
The two schemes have their own conditions and you must apply for each separately.
Find out about the First Home Owners Grant
Saving into your account
- You can deposit money into your account at any time.
- You can only save from your after tax income. You cannot salary sacrifice into your account.
- You must save at least $1,000 in each of 4 or more financial years (that is July 1 to June 30) in order to use the money to buy a home. This doesn't need to be 4 years in a row and you don't need to save every year.
- You can save until the amount in your account reaches the account balance cap. For 2010-11 the cap is $80,000. Over time the cap will be indexed in $5,000 increments. After your account balance reaches the cap, only earnings/interest and outstanding government contributions may be added.
- You can keep your account open until you buy your first home, or turn 65.
Four year rule
To withdraw your savings to buy or build your first home you must have saved at least $1,000 in each of 4 or more financial years (this works out at around $20 per week). This is the '4 year rule'.
Tony's story
Tony decides to open a first home saver account. He already has $6000 and he's trying to work out how much he should use as his initial deposit.
Tony plans to save $250 per month ($3,000 per year). Because he will only receive a government contribution on the first $5,500 he saves into his account each financial year, he decides to put in $2,000 from his savings as the initial deposit and to add $250 a month for the rest of the year. He keeps the other $4,000 of his savings to top up his first home saver account in another financial year. By doing this he maximises the government contribution he receives.
Using FIDO's calculator, he worked out how his savings will grow. The calculator projects that he will save $66,700 after 12 years. If he saved a bit more each month, his savings would grow even faster. The following graph is what the calculator showed. |
Saving with others
Only individuals can open first home saver accounts. Other people, such as family members, can deposit money on your behalf, but you cannot hold a joint account.
If you are saving with a spouse or partner to buy a home and you have separate accounts, you will both get the government contribution on the savings you make to your own account.
When the time comes to buy or build your first home only one of you needs to meet the '4 year rule'.
Tony and Alex's story
Tony and Alex are saving for a home deposit. They both have their own first home saver accounts. Alex saved at least $1,000 for 4 years but Tony has only had his for 2 years. They find a home to buy together. Because Alex satisfies the 4 year rule, they can both withdraw their combined savings to buy their home. |
How much should you save for a home deposit?
The more you save as a home deposit the less you will need to borrow, and therefore the less interest you will need to pay on your mortgage. There is no fixed rule about the size of a deposit, but a common rule of thumb is at least 10% of the price of the home.
Many people aim to save around a 20% deposit to avoid paying lenders mortgage insurance. Lenders mortgage insurance protects the lender if you cannot meet your repayments.
If you cannot save a 20% deposit, consider discussing with your lender how you can avoid paying lenders mortgage insurance.
| Loan | 10% Deposit | 20% Deposit |
| $250,000 | $25,000 | $50,000 |
| $500,000 | $50,000 | $100,000 |
Try FIDO's Budget calculator to work out your living expenses and how much you can afford to save. Saving for a deposit can also get you into the habit of paying a mortgage.
Buying a home will probably be your biggest financial commitment, so find out about the types of loans available.
Deciding if a first home saver account is right for you
First home saver accounts are designed for people who want to use their savings in Australia, to buy or build a home to live in. There are important things to think about when deciding whether such an account will be right for you.
- An account will only suit you if you want to buy your home at least 4 or more years after opening your account.
- Savings in your account can only be used to buy or build your first home, so it may not suit you if you want the flexibility to use your savings for something else. For example, you may decide you no longer want to buy a home but want to spend the money to go travelling.
- The value of the government contributions and the 15% tax rate might mean that a first home saver account is not the best way for you to save, for example, if you are:
- on a low tax rate
- getting good returns elsewhere on your savings.
Depending on your financial situation and circumstances, you may wish to get financial advice from a licensed financial adviser.
Other savings options
There are a number of different savings and investment options to help you meet both long and short-term savings goals. FIDO has lots of information to help you learn about saving, investing and investment risk and return.
More about investing
Use FIDO's compound interest calculator to show you how quickly your savings can grow if you re-invest the interest you earn over a certain period.
| TIP! | There is a 14-day cooling off period for first home saver account. This means that if you decide within 14 days that you don’t want the account, you can close it and withdraw your savings. |
Choosing the right first home saver account for you
From 1 October 2008, different types of financial institutions will offer first home saver accounts for example:
- banks, credit unions and building societies may offer deposit style accounts, while
- super funds, life insurance companies and friendly societies may offer market-linked investment accounts.
Financial institutions must give you a Product Disclosure Statement (PDS) for a first home saver account. This document will tell you about the key features, benefits and risks of your account. It will also tell you about the fees they charge.
Deposit accounts
Much like an ordinary bank account, what you put in stays in. Different financial institutions will offer different interest rates on your savings. Your financial institution will tell you about any fees which they will charge on your account.
Use the First home saver account calculator to compare account types.
Investment accounts
Much like superannuation, your savings may be invested in a mix of assets (including shares, property, cash and fixed interest products) and you may have a choice of investment options (such as growth, balanced or conservative).
An investment type option for your first home saver account may generate a higher return, but you need to be prepared for your savings to go down in value as well as up. Depending on your timeframe, such investments may be riskier due to fluctuations in the market because they do not guarantee the capital invested or the rate of return.
Find out more about risk and returns
Fees and costs
Fees and costs on your account may include:
- account keeping fees
- entry, establishment or contribution fees
- exit fees, which may be deducted when you close your account or transfer to another financial institution or super fund or
- management fees and costs (including any commissions) which may be taken out monthly or quarterly.
Changing financial institutions
You can move your savings between financial institutions. Generally you will do this by opening an account with the new institution and asking them to arrange for your existing account to be closed and the funds transferred into your new account.
The Product Disclosure Statement will explain how to arrange the transfer.
| TIP! | Before switching accounts, make sure you understand if any exit fees apply. |
Withdrawing your savings to buy a home
After you have found your home or the land you want to buy, you can apply to your financial institution to withdraw your savings from your account.
- You must withdraw all your savings before settling the purchase contract or completing the construction. Amounts cannot be withdrawn for a first home you already own or after settlement of the contract or after completion of the construction. Whether you buy at an auction, a private sale or enter a contract to buy a house and land package, you must withdraw all your savings and close your account.
- You can only withdraw your money to make a payment directly necessary to buy or build a first home. Your home must be located in Australia or Norfolk Island and you must live continuously in the home for 6 months starting within 12 months of settlement or when construction is completed.
- You must use all the money from your account within 6 months of withdrawing it. The money can be used to meet a variety of costs, such as:
- the deposit on the home or on the land the home will be built on
- stamp duty
- legal fees and other settlement costs
- council fees, building inspection costs and finance approval fees and
- when construction is involved, building costs and contract payments.
What if your home purchase falls through?
If your home purchase falls through, you can open another first home saver account and deposit the savings you withdrew. You will not be penalised for having failed to buy or build a home in these circumstances if:
- the sale fell through for reasons that were beyond your control and were not reasonably foreseeable,
- you deposit the funds you withdrew or the amount left over after taking into account any amounts you spent trying to acquire the home (for example, legal fees, council fees, building inspection costs or seeking finance approval) into another first home saver account as soon as practicable.
What if your situation changes
What happens if you change your mind?
- If you change your mind within the cooling off period of 14 days from the date of opening your account, you can close your account and withdraw your savings.
- If you change your mind after the cooling off period, for example, you want to buy a home within 2 years of opening your account or you start living in your investment property, you cannot withdraw your savings from your account. You must transfer the money into your super fund where it will be invested until you retire. (The exception is if you are over 60, in which case you can withdraw the money at any time.)
What if you move overseas?
You can keep your account open if you move overseas, but you will no longer receive any government contributions. You will be eligible for a government contribution again if you become a resident of Australia for tax purposes for at least part of the financial year and make personal savings during that year.
What if your relationship breaks up?
If you and your spouse or partner divorce or separate the savings in your account may become part of any settlement proceedings.
What if you are suffering financial hardship?
Unlike ordinary savings accounts, you can't take money out of a first home saver account whenever you want, even if you are in financial hardship. You must transfer the money into your super fund where it will be invested until you retire.
In special cases, super funds may release some super money early for hardship or compassionate reasons. The law is very strict about when super funds can do this.
Talk to your super fund before you transfer money to make sure that you clearly understand the fund's rules or get help from an independent financial counsellor.
More on early release of your super
| TIP! | Think carefully about whether you want to put all your savings into a first home saver account. Maintaining another savings account as well as your home saver account may give you more flexibility to use your savings for other purposes. |
How to complain
If you have a complaint about your account, first complain to the financial institution to see if they can resolve your complaint. If your complaint is not resolved, you can complain to the Financial Ombudsman Service (FOS).
More on how to complain
Useful links
Australian Tax Office (ATO)
First Home Owners Grant
Department of Treasury First Home Saver Account website
Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA)
State and Territory Fair trading offices produce helpful guides on buying or building your first home.
First home saver account checklist
Special rules apply to first home savers accounts. Make sure you understand how they work so you know they are the right way for you to save. Before opening an account use this checklist to help you decide if this is the right way for you to save.
| Checklist |
1. Are you eligible to open a first home savers account?
- Not everyone can open an account
- Accounts are only for first homebuyers
- You must be aged between 18 and 65
- You cannot open an account if you have previously opened one (except in limited cases)
- You must be planning to buy your home at least 4 years after opening your account.
|
2. Special rules apply to accounts
- Personal contributions of up to $5,500 a year attract a 17% government contribution (the threshold will be indexed over time).
- You can't withdraw your money at any time
- You must save at least $1,000 in each of any 4 financial years before you can withdraw your savings for a home. (the 4 year rule)
- The savings in your account must be moved into your super fund if you decide you don't want to buy a home or if you change your mind after the cooling off period
|
3. Choosing the right account for you
Read the product disclosure statement to understand the key features, risks and costs of different types of accounts
- What are the fees and costs on your account? How will these affect your ability to save?
- Try the first home saver account calculator to compare account types to compare products and see whether you can meet your goals.
|
FIDO Website: Printed 07/31/2010
