If a lack of extra cash is turning you off of considering a First Home Savings Account, some experts say it might still be worth opening one before the year comes to a close.
In fact, Ratehub.ca鈥檚 business director of everyday banking, Natasha Macmillan, encourages young Canadians in particular to open an FHSA as soon as possible 鈥� if for no other reason than to maximize the account鈥檚 contribution limit sooner rather than later.
鈥淔HSAs hit the market in April of this year as another registered savings account available to Canadians, where anyone who hasn鈥檛 yet bought a property can put away up to $40,000 tax-free for the purchase of their first home,鈥� she said.
The lifetime maximum of an FHSA is $40,000 and you can contribute up to $8,000 to the account every year.聽
Individuals are allowed to carry forward unused portions of their annual contribution limit into a subsequent year, on top of the $8,000 available for that future year.聽
Macmillan says it can be worthwhile even for those who can't find the maximum $8,000.
鈥淓ven if you鈥檙e not in a place to financially contribute anything substantial 鈥� or anything at all, for that matter ... opening the account is still a great way to secure more of an opportunity for savings in the future when you鈥檙e ready to make use of it,鈥� she said.
鈥淭hat way, you鈥檙e not starting from ground zero by the time you鈥檙e making enough to contribute a lot, and don鈥檛 find yourself in a place where you could put a significant amount in the account and take advantage of that tax benefit but are limited by that $8,000.鈥�
Jaren Malina, a fifth-year food business management student at the University of Alberta, opened an FHSA this year with a similar strategy in mind. Though he has only contributed $100 so far, he said just the act of opening the account felt like a useful investment in his financial future.
鈥淭he way I see it is as a way to increase how much I can save while keeping it tax deductible, like an extension of my TFSA,鈥� he said.聽
鈥淎nd hopefully, home ownership or a real estate investment is something that will be possible for me, so having it open earlier means I鈥檒l have more room to save later on.鈥�
According to Macmillan, the main disadvantage of FHSAs is that account holders must purchase a house within 15 years of opening one.
鈥淗owever, you can roll your FHSA contributions into your RRSP at any point without affecting your RRSP contribution room,鈥� added Macmillan.
Furthermore, Macmillan emphasized the importance of knowing one鈥檚 risk appetite when choosing whether to use an FHSA or a different type of account to save or invest.
鈥淔or someone in a bit of a more uncertain financial space, like a student, I鈥檇 say opening a standard savings account is probably the best route,鈥� she said. 鈥淚f you do choose to invest, be conservative with it and go with a platform with low fees.鈥�
For the working millennial or gen Z with a regular income, investments that require a longer-term commitment 鈥� like a guaranteed investment certificate, which can earn a solid return but can鈥檛 be touched for a specified period 鈥� might be more reasonable.
For now, Malina is focusing on his TFSA contributions, given the account鈥檚 flexibility with withdrawals aligns better with the financial precariousness of being a full-time student and soon, entry-level professional.
鈥淭he way I view it, (FHSAs) are more of a great secondary investment vehicle,鈥� he said.聽
鈥淥nce I get to a point where I鈥檓 able to max out my yearly TFSA contribution limit, I think the FHSA will be where I put any extra money I have to save.鈥�
In terms of when Malina expects to buy his first house, he noted it鈥檚 unlikely to happen any time soon. Nevertheless, he hasn鈥檛 let the cynicism some of his peers feel toward the housing market prevent him from taking tangible steps toward making home ownership a reality.
鈥淎 lot of people might think there鈥檚 no point to saving based on housing prices in sa国际传媒,鈥� he said.聽
鈥淥bviously, there's fairness to that but I think it's important for people to do the best they can in the situation they鈥檙e in to build up some (security) for themselves.鈥�
This report by The Canadian Press was first published Sept. 26, 2023.
Pascale Malenfant, The Canadian Press
