RIP first home saver accounts - what now for deposit savers?
Saving for your first home? First home saver accounts may have been scrapped by the Abbott Government but there are plenty of other ways you can boost your savings pile for that first home deposit. Here's some ideas to get you started.
[UPDATE] Did you know that Aussies now have access to a tax incentive dubbed the First Home Super Saver Scheme? And as of January 2020 eligible first home buyers can also apply for the First Home Loan Deposit Scheme.
The party didn’t last long for first home saver accounts, getting the chop under the Government’s controversial 2014-15 Budget announcement and saving $134.3 million over the next 5 years.
What was the first home saver accounts scheme?
The first home saver accounts were available for those struggling to build up the required deposit for their first home. When Tony Abbott’s team pulled the plug, the first home saver accounts offered a 17% interest rate on the first $6,000 deposited each year (and a 15% tax rate on the interest earned) - pretty generous when you consider no savings accounts in Australia offer a rate over 5%.
But alas, it seems first home buyers weren’t impressed, as only 48,000 accounts were opened since it was introduced in 2008, when 730,000 were originally expected for the four years to 2012.
Why did the scheme fail?
The poor uptake has been blamed on everything from bad marketing to tough regulations (dubbed as “forced savings” by some) as account holders had to wait 4 years to access their funds and if you didn’t use the money towards your first home, it would be pumped straight into your super.
What are the changes?
Current account holders won’t receive the special rate on any personal deposits after July 1 2014 but they will still get the 15% tax concession until we officially say goodbye to the first home saver accounts from 1 July 2015. Accounts will then be treated like any other savings account and holders will be able to withdraw funds as they please, instead of the mandatory 4 years.
What now for first home deposit savers?
Wipe those tears away, there’s plenty of other options available for attaining the holy grail of home ownership.
- Check out the first home owner grant available in your state. The one-off grant could be the key to your dream home. See your states’ grant amount and requirements here.
- Ditch credit card debt. If you’ve accumulated debt on your credit card, switch to one of the 0% balance transfer offers available now because the interest you’re paying the banks, could go straight towards your first home deposit. Keep in mind, most balance transfer credit cards revert to the higher cash advance rate after the intro period ends, so make sure you pay off all the debt in the balance transfer period.
- Consider your deposit and repayment costs. Use Mozo’s home loan repayments calculator to see how much your monthly repayments would be. If the repayments are more than expected, consider purchasing a smaller property or look for a property in a more affordable area.
- Set a budget and stick to it. Saving for your first home isn’t going to be pain free and you may have to say goodbye to a few boozy nights, sleek designer threads and exciting overseas adventures (for a while). Of course, you don’t want to live solely on cans of tuna, so treat yourself every now and then. Try Mozo’s budget calculator to get an idea of how much you can afford to spend and save here.
- Open a high interest savings account. Make saving a non negotiable by setting up direct deposits into a savings account with 4% interest or more. Remember to keep an eye on the savings market and switch accordingly, as high interest savings account often revert to a lower rate after the intro period ends.
- Move back home. As horrible as it may sound, you could fast-track your homeownership journey by embracing your inner kidult and returning to the nest. You’ll save yourself thousands in the cost of rent and utility bills, for example if your rent is $200 a week, you’ll save yourself over $10,000 in a year.
- Get a second job. Kickstart your savings with a casual job on the side. Consider roles like bartending or working in the hospitality industry - to keep your social life alive.
- Sell your old stuff online. There’s plenty of money to be made online from platforms like Gumtree or eBay. All you have to do is put up your clothes, furniture or tech that you no longer use for cold hard cash.