First Home Saver Accounts a flop

First Home Saver Accounts have failed to attract deposits and need to be overhauled if they are going to be of value to people saving for their first home.

In its submission to the Senate Economics Reference Committee inquiry into small business access to finance, the mutual industry body Abacus cites data from the Australian Prudential Regulation Authority showing that at September last year the amount in FHSAs was $43.9 million.

The Australian government launched FHSAs in 2008. At the time it was estimated they would hold $4 billion of savings after four years of operation.

Abacus wants the government to change the conditions of the product so that savers are not locked in for a long term

Interest earned on FHSA account balances is taxed at 15 per cent (interest earnings are usually taxed at marginal rates). The government contributes 17 per cent on the first $5000 deposited each year over four years, meaning that account holders can qualify for up to a total of $3,400 of government contributions.

Withdrawals are tax-free. Withdrawals can be made for one of two purposes: to purchase or build a first home in which to live; or to transfer into a superannuation fund if, due to circumstances, a home is not going to be purchased.

To qualify for the concessions the customer must make personal after-tax contributions of at least $1000 a year over four financial years. Account balances are capped at $75,000.

Abacus says the most consistent consumer concern in feedback from member organisations is that the four-year lock-up requirement is too long and is the single most important disincentive for savers.

A spokesperson for ME Bank, which is the FHSA market leader, agreed that deposit flow was slow and that customers baulked at the requirement to keep the money in the account for four years.
 
Abacus recommends that the Government remove or reduce the period of time during which savings in FHSAs can't be withdrawn.

The submission says: "The Government contribution is incentive enough to ensure that savers contribute over a number of years. A minimum period is an unnecessary disincentive and penalises savers who have the opportunity to buy a house within the lock-up period."