First Home Saver Account proves unsuccessful

The first-home saver accounts announced by the Rudd Government appear to be a national flop.

Fewer than 4000 of these accounts have been opened with a 17 per cent return on deposits.

The Sunday Telegraph has revealed that 11 of the 19 financial groups have revealed these figures while eight refused to divulge their figures.
Since the scheme began in October fewer than 35 accounts have been opened by eligible customers.

Only two of the big-four banks, Commonwealth and ANZ, offer the novel accounts, promised by labor at the last election.

Abacus, the body that represents credit unions and building societies has been disappointed by the take-up rate. Abacus' senior policy adviser Luke Lawler stated that judging by the feedback received consumers are finding the four-year lock in period a bit intimidating. Savers that are actively house-hunting don't like the idea of locking in funds for that long.

It is a good idea, but there are a few restrictions in the way it has been designed. This is fairly noticeable by the lack of numbers of the accounts.

First Home Saver Account in a nutshell

The way the scheme is structured, is that the government pays 17 cents in every dollar - up to $500 that first-home savers put in their accounts each year with a $75,000 cap. There is strict eligibility criteria involved with this scheme. Savers have to be first-home buyers, 18 or older and must deposit at least $1000 a year for four years.

This money cannot be withdrawn until the four years are up, and can only be used to buy or build a house. Should the contract fall through or buyers change their mind during settlement, the money has to be transferred into superannuation.

First Home Saver Account flaws

It is felt that the strict withdrawal rules are the main deterrent to people signing up for the generous interest rate.

David Bell chief executive of Australian Bankers' Association said that the government should consider adjusting the product and ease contribution and withdrawal rules. Mr. Bell also felt that in light of the Federal Government's fiscal stimulus strategy and initiatives that removing the four-year restriction would not compromise the initial policy objective of fostering saving for first-home buyers.

Some of the bigger institutions like ANZ have opened 2530 accounts and AMP about 600.

Glenn Elliot chief executive of Wagga Mutual Credit Union said external factors had taken the gloss off the first home saver accounts, and that the Federal Governments first-home owner boost had affected the take-up as had the general economic slowdown.

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Published on May 5-th, 2009 in Home Loans
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.
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