RBC has launched Canada’s new First Home Savings Account (FHSA), to help Canadians save tax free for their first home.

FHSA earnings are tax free

The FHSA combines the best features of an RRSP and a TFSA. Like an RRSP, contributions are tax deductible. And like a TFSA, FHSA earnings are tax-free, provided they are used for a qualifying home purchase when withdrawn.

The annual contribution limit per individual is $8,000 up to a lifetime maximum contribution of $40,000. Unused contribution room can be carried forward to future years (subject to certain requirements). However, contribution room only starts to accumulate after an FHSA has been opened.

“We wanted to make this account available as quickly as possible. Canadians can start making their FHSA contributions and investing those funds, to begin their home buying journey,” said Erica Nielsen, executive vice president, Personal Banking & Investments, RBC.

“The big plus is that any investment gains within your FHSA can also go toward your home purchase, on top of your $40,000 FHSA lifetime contribution maximum.”

Also, for anyone who has been contributing to their RRSP to use the Home Buyer’s Plan (HBP), FHSA funds can be combined with those savings to put toward the purchase of a home, with no impact on contribution limits for the HBP or the RRSP. Individuals who can take full advantage of both the FHSA and the HBP could accumulate up to $75,000 – or up to $150,000 per couple – plus potential earnings within their FHSA toward a down payment on a first home, as defined for an FHSA.

FHSA available via RBC Direct Investing and RBC InvestEase

RBC is now making FHSAs available through RBC Direct Investing and RBC InvestEase. FHSAs can be opened digitally at either of these RBC online investment services and through RBC Online Banking. Customers can also speak with a financial advisor at an RBC branch.

“Our research indicates Canadians have been eagerly awaiting the FHSA. Almost one-third of those who aren’t yet homeowners tell us they were planning to use this new account to save for a home purchase,” added Nielsen. “This new savings and investing account will be a tremendous support to anyone who has that dream.”

“We hope Canadians will check out RBC’s FHSA options on our website or come into any of our branches.”

As local media has reported, the FHSA is a no-brainer for any Canadians looking to get their foot on the property ladder. The First Home Savings Account concept is a key policy of the Canadian government’s 2022 budget. Banks were enabled to launch the product from 1 April under legislation passed earlier this year.

In the first quarter of the current fiscal, RBC’s Canadian Banking business unit earned record revenue of C$5.3bn. RBC added $28 bn of mortgages over the past 12 months, up 8% from last year. Looking forward, RBC continues to expect annual mortgage growth to slow to the mid-single digits given deteriorating affordability.