If you are starting to save your money for a down payment it can be super confusing on where to put the money. So many different options! RRSP, FHSA, Chequing Account, TFSA, under your pillow? I am going to break down for you what accounts you should be opening and in the order of priority.
First Home Savings Account (FHSA)
You can save up to $8,000 per year for every year after you open the account up to a maximum of $40,000. The money you put into the account is tax deductible and withdrawals don’t need to be paid back. You are also able to transfer money from your RRSP into your FHSA (tax-free).
RRSP Home Buyers Plan
You can withdraw up to $60,000 in RRSPs to be used towards purchasing your home (down payment, closing costs, furniture). You do have to pay back the RRSPs within 20 years. The RRSP contributions must have been in the RRSP for 90 days before you withdraw them, and you have to withdraw them within 30 days of closing the new house. If you’re purchasing with someone who is also a first-time homebuyer, you can both access $60,000.
Tax-Free Savings Account
Tax-free savings accounts started back in 2009 and they allow you to contribute money that you have already paid tax on, but it is allowed to grow tax-free. So if you invest $22,000 into a tax-free savings account and it grew to $25,632 that $3,632 that you made would not be taxed.
High-Interest Savings Account
Once you have maxed out the first three programs, a good old fashioned High Interest Savings Account is fantastic.
Please be careful with GICs. They traditionally are locked in accounts that you can’t get access to for a set period of time.
You do need to take into consideration how soon you are buying, what your budget will be after you buy, etc. If you need help planning it out, book a meeting on www.chatwithlora.com