The (4 year?) bank account that pays 17% on money you put in + Bank Interest
Updated: for 2012 Rates $5,500 contribution threshold and $85,000 account cap
Are you 18 or older and thinking about buying a property?
First Home Saver Account
What is it? A First Home Saver Account is a bank account where the government pays 17% contribution on money you put in PLUS bank interest.
But Are you thinking about buying a house in less than 4 years? – You might decide the account is not for you. But you might want to read on just in case.
The Catch: You can’t transfer the money against your (new) home mortgage until you have met all conditions below.
To open the account
- Only for your first home
- Aged 18 or above
To use the funds for your first home
- Hold the account for at least 4 years
- Need to have 4 years where yearly contribution is $1,000 or more.
To summarise: If you start a first home saver and buy a house after four years but haven’t put $1,000 in a year for at least 4 years – the money is kept in the account until you have.
What you get on the money you put in
- 17% government contribution which comes after you lodge your tax return each year (nothing required to be put in the return the ATO/government works it out)
- 2. Regular Bank Interest – say 4%+
- Maximum contribution amount per year you get 17% on = $5,500 (so max you could get each year is $5,500 x 17% = $935) for 2011 and 2012 contributions.
- Maximum Length you can hold the account – no set date (if it takes you 15 years to save for a home – so be it!)
- Maximum amount in account before 17% contributions stop = $85,000 for 2012 (although can still earn bank interest after this)
- Minimum age – 18
This was one of my top 5 tips for Generation Y when nomoney featured on A Current Affair in January 2010. Has anybody started a first home saver account? If so – please send me an email email@example.com
First Home Saver Tips and Comments
Nomoney Comments on the first Home Saver
Are you saving for a home? – If Yes then you probably want to buy it in under 4 years.
If you are not saving for a house – then you probably wouldn’t plan 4 or 5 years ahead and wouldn’t dream of setting up a First Home Saver Account. But maybe you should… If you are 18 or over and plan to buy a home – this is a pretty good deal.
At least the money isn’t going to super! –(like the original plans)
Questions you might have:
What If I want to buy a house in 3 -4 years but it might take me 4 – should I risk it?
Maybe…Talk with your lender/mortgage broker – maybe your lender might take the money into account (but you might have to shop around for a lender to do this and it might cost you extra interest or bank fees).
What If I want to buy a house in 1-2 years– should I open an account?
If you put $1,000 a year into the account you would get $170 (plus bank interest which you would get anyway). $170 Contribution x 4 = $680.
You might get $680 extra cash (for $4,000 investment) but might not be worth it for the hassle involved (setting up the account, making sure transfers are made, getting the money out).
Although it Is better than nothing.
Open a First Home Saver account asap.
Save, beg or borrow $1,000 each year into the bank account until:
- You are ABSOLUTELY 100% sure you won’t be getting a house within 4 years
- The 4 years are over
After you are sure you will meet the conditions above then
Transfer up to $5,500* a year until:
- You buy your first home
- You reach the $85,000 cap (although I don’t think there are any penalties in going over this – but you might wish to not keep all your eggs in one basket.
*As the 17% on contributions is only paid $5,500 – you may choose to put the excess over $5,500 into another account with higher interest and then transfer the next year.
The above is based on my understanding of the information provided by the government and the ASIC calculator. You should do your own research and seek professional advice.
These are general comments – which may not work in your financial situation – see our disclaimer page.