Are you a first-time home buyer thinking of giving the First Home Savings Account (FHSA) a try? You may find it tricky to get started – more than a month after the account’s official April 1st rollout, it’s available at just a handful of financial institutions. So what’s with the holdup – and how may prospective clients be impacted? Check out this informative video below, then read on for more detailed information.
The First Home Savings Account: An overview
There’s been a lot of buzz about the First Home Savings Account – the latest tool from the federal government designed to help first-time home buyers save up for a down payment – since it was first announced in the 2022 Federal Budget.
The account is touted as combining the best features of an RRSP and TFSA: it’s tax-deductible, meaning savers will receive a return on their deposits each tax year, and won’t be taxed on any income earned on investments housed within the account. Funds are also not taxed at withdrawal, providing the account holder has entered into an agreement to purchase a home. Up to $8,000 can be contributed to the FHSA by an individual per year, up to a lifetime maximum of $40,000. Partners who are saving for a home purchase together, and can both be defined as first-time buyers, can combine their saving room for a total of $80,000.
And savers can open the account without immediate plans to buy; the FHSA can be kept open for a maximum of 15 years, or until the account holder turns 71; like an RRSP, the funds must then be transferred into a RRIF. Account holders can also choose at any time to transfer their FHSA into an RRSP without tax penalty, should they choose not to use the money for a home purchase. To be eligible, account holders must be 18 years of age, be defined as a first-time home buyer, and be a Canadian resident.
And it appears these features are hotly anticipated by would-be buyers.
“Our research indicates Canadians have been eagerly awaiting the FHSA, with almost one-third of those who aren’t yet homeowners telling us they were planning to use this new account to save for a home purchase,” says Erica Nielsen, RBC’s executive vice president of Personal Banking & Investments. “This new savings and investing account will be a tremendous support to anyone who has that dream.”
Where can I currently get the FHSA?
The only problem? As of May 10, 2023, the FHSA is currently only available from three financial institutions:
- Royal Bank of Canada: (via RBC Direct Investing and RBC InvestEase; the account can be opened either digitally or by speaking to a financial advisor at an RBC branch)
- National Bank: Clients can set up an appointment to get started.
- Questrade: Available online as part of their self-directed investments lineup
When will the First Home Savings Account be available at my bank?
If your financial institution isn’t on the above list, don’t fret; all of the big five banks and many smaller FIs have plans to roll out the account in the coming months. As told to Ratehub.ca:
Scotiabank: “We are excited to bring another savings opportunity to our clients later this year and, as information becomes available, plan to share an update regarding timing in the coming months.”
CIBC: “We encourage customers with a homebuying goal to speak with a Scotiabank Advisor who can provide advice on different available options to help reach their goal. In addition to the wide variety of savings products we offer our customers today, we’re targeting to offer the new first-time homebuyer’s savings account to customers in the 2023 tax year.”
TD: “TD understands that saving for your first home is one of the most important financial journeys for Canadians, so we are working to ensure the FHSA has the features and benefits that Canadians need, when we launch it in summer 2023. In the meantime, customers can visit our public webpage to learn more about it, and once the FHSA becomes available, we encourage those interested to book an appointment with a TD Personal Banker at any of our branches across the country.”
EQ: “EQ Bank will be offering an FHSA and we are excited to make it available to customers soon.”
Saven: “We are working on plans to offer the new FHSA to our members and expect to able to share more details in the coming months.”
Simplii: “We plan to provide a First Home Savings Account and will have more details to share with our clients in the coming months.”
Why isn’t the FHSA available everywhere yet?
The main challenge for Canada’s financial institutions – and the reason none of the Big 5 were ready by the April 1st launch date – is one of logistics; FIs must go through the process of obtaining government authorizations to offer the account. Questions also remain on the tax reporting process, which the Canada Revenue Agency must clarify.
Not all of the infrastructure to support the features to be offered by the FHSA – such as transferring funds between FHSAs, as well as to and from RRSPs – is ready yet. For instance, on the CRA’s website, the section that outlines the process for designated withdrawals still says forms will be available at a later date.
The bottom line
There are many potential benefits of using the FHSA: savers can get a significant tax return each year they deposit funds into the account, and can grow their money at an accelerated rate without taxation. The account offers decent flexibility for those who ultimately decide homeownership isn’t for them, with the ability to transfer funds to an RRSP or RRIF.
However, there are risks for clients who want to be among the first to use this new account; it’s still unclear on how long the fund withdrawal process will take, given the limited information currently available. Keep checking back to learn more once the FHSA is fully rolled out and available to clients.