It can be hard saving for your first home and can often take several years. However, the Government has created a way for you to save for your first home while they also make some contributions. But questions have been raised over whether it is the best option to choose.

The First Home Saver Account was introduced in October 2008 to help first home buyers save for a deposit on a house. In the past, the First Home Buyer Grants have been extremely beneficial, but since many of the First Home Buyer Grants have been cut recently, many prospective first time owners are looking towards the First Home Saver Account. However, there are some limitations.

This account has a ‘four-year rule’. So, you will need to put at least $1,000 into your account every year for at least four tax years to be able to withdraw money to purchase your house. However, these do not have to be consecutive years. This account is for your deposit and for no other reason. You may be thinking that you could just close the account and take the money if you change your mind; however, you are only able to transfer the amount to your superannuation fund if you don’t apply the funds towards a deposit.

When the account has reached a maximum balance, you are not able to make any more deposits and the government contributions will stop. For 2012-2013 the maximum amount is $90,000.

There are several benefits to having a First Home Saver Account. The major one being that the government will contribute 17% of your personal contributions into the account every year, however there is a limit on how much the government will give. For 2012-2013 the maximum the government will contribute is $1,020 and that will be reached when you have contributed $6,000. Another benefit is that the interest on the account is not considered income on your tax return.

A First Home Saver Account may not be suitable for those who are considering buying a house within the next two years. However, those who have a medium to long term strategy could benefit, however, you need to weigh up the limitations with the benefits.

If you only pay the minimum and keep the account for the minimum time period, you will get little benefit. First Home Saver Accounts have similar rates to high interest savings account, so the majority of your savings will be from the government benefits and tax savings on the interest. But, if you are only making minimal repayments, you will not receive much from the government or from the tax savings and you may have been better off simply using a high interest savings account without all the limitations.

It is important to pay close attention to the limitations of the First Home Saver Account to ensure it will be best for your situation. Your financial advisor will be the most help to you to ensure you understand the process and can make a well informed decision.

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Anouska Linz

Anouska Linz is Manager, Online Sales at State Custodians and has over 10 years’ experience in financial services, both in broking and banking. Holding a bachelors degree in accounting, Anouska quickly discovered a love for mortgage lending and assisting people to achieve their home ownership goals. She leads a team of highly experienced lending specialists who are passionate about finding lending solutions which result in real wins for the customer. She is also a massive netball fan.

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