If someone told you about an investment that would give you a guaranteed 17% return, usually the smart thing to do would be to back away quickly, the scam warning light buzzing like crazy in your head.
But there is a little known Australian savings account that gives investors up to a massive 20.5% return on their investment on the first $6,000 they contribute each year.
The accounts are called First Home Saver Accounts and they are the smartest way to save the deposit to buy your first home.
How It Works
In 2008 the Australian Government announced a saving scheme designed to help first home buyers save the deposit to get into their first home.
The government promised to pitch in 17 cents for every dollar that account holders saved up to $5,500 a year – it’s since been raised to the first $6,000 each year. That means if you save $6,000 a year, the government will contribute an extra $1,020 to your account. Plus you earn bank interest on top of that.
The money can only be used to buy your first home to live in – not an investment property (although you’re not excluded if you’ve bought an investment property in the past).
Basically, the government will give you free money to help you buy a home.
But I know you’re wondering what the catch is…
Conditions of First Home Saver Accounts
There are certain restrictions on First Home Saver Accounts that don’t apply to regular saving accounts.
For one thing, you have to deposit a minimum of $1,000 in each of four separate financial years. That seems like a long time to save, but in reality
- Four years is a pretty reasonable amount of time to save a 20% deposit, or around $60,000, and
- Four financial years could mean your account has to be open for as little as 2 years and 2 days – if you opened it on 30 June 2014, you could access the cash as soon as 1 July 2016.
If you buy a home before the four years is up, the money can be withdrawn at the end of the four-year period to reduce your mortgage. You won’t be able to make any more deposits once you have built or bought a house.
The maximum account balance is $90,000. After this, you won’t be able to contribute any more money (but you can still earn interest).
The money has to be used to buy your first home to live in. Otherwise, the funds get added to your superannuation and you won’t be able to access it until you retire.
Comparison to a Regular Saving Account
So let’s have a look how this compares to a regular saving account. Say you contributed $6,000 a year, with each one paying 3.5% interest.
I’ve had my account for three years now. When I first opened it, I thought that four years might be too long to wait to buy a home. But so much has changed in my life since then – I’ve moved cities, changed careers and have big travel plans. I’m not in a position to buy now, but I’ve happy that I’ve earned considerable interest towards my first home and I’ll be in a much better position when I do decide to buy.
How to Open a First Home Saver Account
Very few of the major banks actually offer this product – they’d much rather encourage people to borrow from them, rather than save. But the best account I’ve found is ME Bank – it’s paying a ‘generous’ 3.5% interest – the highest at this time (oh for the heady days of 6% interest).
And remember, you’re not locked into any one provider, so if another bank does offer a higher rate, then by all means be a rate tart.
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