The First Home Savings Account (FHSA) is a new registered account in Canada that offers up to $40,000 in tax-free savings, allowing Canadians to save for their first home while providing tax benefits and other incentives to ease home affordability.
The FHSA was created to help Canadians save more for their first home. If you are looking to open your FHSA account and wondering which is the best FHSA provider in Canada, we’ve got you covered.
In this blog post, we provide a comprehensive overview of FHSA Canada, explaining the eligibility criteria, contributions and withdrawals. We will also highlight some of the best FHSA providers in Canada.
The 6 Best FHSA Providers In Canada
Many financial institutions in Canada are still in the process of finalizing their offerings. Presently, only a limited number of institutions provide the FHSA account option.
To help you make an informed choice, we’ve compiled a list of the best FHSA accounts in Canada. This guide will help you navigate the current landscape of FHSA providers in Canada.
1. Questrade FHSA
Questrade took the lead as the first FHSA provider in Canada, after its launch on April 1, 2023. While the platform is widely recognized for enabling do-it-yourself (DIY) investing, it also offers FHSA accounts through Questwealth, their robo-advisor platform.
So whether you choose the DIY or their robo-advisor platform which offers an automated approach, the intriguing aspect is that you can initiate your savings journey without any initial costs.
Questrade facilitates cost-free trading of Exchange-Traded Funds (ETFs) and imposes no minimum deposit requirement. However, it’s important to note that you’ll need a minimum investment of $250 with Questrade or $1,000 with Questwealth Portfolios to initiate an account.
2. Wealthsimple FHSA
Wealthsimple offers a comprehensive FHSA account that caters seamlessly to both DIY and robo-investors.
If you’re keen on maintaining low fees, Wealthsimple’s robo-advisor platform, Wealthsimple Invest, could be an excellent fit, with portfolio management fees spanning from 0.4% to 0.5% annually. Alternatively, if you lean towards a self-directed approach, Wealthsimple Trade is a viable option.
While Wealthsimple Invest strategically employs iShares, Vanguard, BMO, and State Street ETFs and even introduces its range of responsible and halal ETFs, adding diversity to investment options, Weathsimple Trade allows you to conveniently buy and sell from a selection of over 9,000 stocks and ETFs.
Notably, all trades are commission-free on this platform, although it’s important to mention that not all stocks and ETFs are available within its offering.
3. RBC FHSA
RBC offers a versatile FHSA solution accessible through both RBC Direct Investing, its online brokerage platform, and RBC InvestEase, its user-friendly robo-advisor platform.
The RBC InvestEase automatically allocates funds once your account balance reaches $100. With this, you incur an annual management fee of 0.5% based on your investment balance, along with applicable sales tax and a management expense ratio associated with the exchange-traded funds (ETFs) in your portfolio.
However, RBC Direct Investing offers FHSA account holders a fee-free maintenance experience, providing an extensive range of investment options, including stocks, options, bonds, mutual funds, ETFs, and GICs. There is a $9.95 commission fee for each stock and ETF trade.
You can create an account via RBC’s online banking portal or mobile app or consult a branch financial advisor. Remarkably, no stipulated minimum balance is required to kickstart your RBC FHSA journey.
4. TD FHSA
In August 2023, TD introduced its FHSA to the market, stating that it is committed to delivering a comprehensive array of FHSA investment options that are accessible through its branch network. Between August 16 to October 31, 2023, TD rolled out a compelling incentive for its customers.
Those who choose to invest $3,000 or more in a TD mutual fund (excluding U.S.-denominated units) or opt for a TD Canada Trust non-cashable Guaranteed Investment Certificate (GIC) with a maturity of 1 year or more and then maintain this investment until January 31, 2024, received a rewarding bonus of $100.
This initiative serves as an attractive proposition for customers aiming to bolster their TD FHSA investments while enjoying an enticing financial incentive as an added bonus.
5. Scotiabank FHSA
Like TD, Scotiabank also introduced its FHSA in August 2023, although the product lineup remains somewhat restricted at present.
Currently, customers are exclusively offered the opportunity to maintain cash savings within the Scotiabank Savings Accelerator, representing the bank’s highest-interest savings account alternative. Notably, funds held in the FHSA accrue an annual interest rate of 0.75%.
What’s particularly enticing is that Scotiabank is currently running a time-limited promotion. This offer entails a noteworthy bonus interest rate of 4.25%, resulting in a cumulative interest rate of 5%, applicable to fresh deposits made between August 14, 2023, and January 31, 2024.
This unique incentive adds an attractive dimension to the Scotiabank FHSA proposition for potential investors during this specific timeframe.
6. EQ FHSA
EQ Bank presents a compelling FHSA solution that offers account holders an attractive 3% interest on funds held within their FHSA Savings Account and the option to invest in FHSA GICs (excluding Quebec).
To embark on your FHSA journey with EQ Bank, you must establish an EQ Savings Plus Account. Interest for the FHSA Savings Account accrues daily and is monthly credited to the linked Savings Plus Account.
Furthermore, EQ Bank currently offers an enticing referral bonus scheme. By successfully referring someone to an EQ FHSA, you can earn rewards: $20 for each of the first three referrals, $30 for each of the next four, and $40 for each subsequent referral, up to a maximum of $500.
How to Choose The Best FHSA Provider in Canada
When it comes to selecting the perfect Family Heritage Savings Account (FHSA) provider in Canada, the array of options available might leave you feeling overwhelmed. To make a well-informed decision that aligns with your unique needs, consider the following factors as you embark on your FHSA journey:
1. What Services They Offer: Do you like talking to someone about your investments? Some online platforms might not give you the help you want. Make sure to ask what kind of support you’ll get.
2. How Much You Know About Investing: Are you good at investing, or is this new for you? If you’re experienced, you might want an FHSA from an online brokerage where you can control your investments. If you’re new, you might like a low-cost robo-advisor or an advisor to manage your money for you.
3. Fees for Trading and Managing: If you want to invest your FHSA money, look carefully at the fees for making trades or having someone manage your investments. These fees can add up quickly. How you feel about paying these fees will help you decide if you want to use a regular brokerage, a discount brokerage, or a robo-advisor.
4. Interest Rates: Some FHSA providers give you a good interest rate, similar to Tax-Free Savings Accounts (TFSAs). If you want to earn tax-free interest without buying stocks or bonds, an FHSA with interest could be best. Pick the one with the highest interest rate for your savings.
Note: You’re not required to keep all your accounts and investments at a single financial institution. It’s a good idea to explore different options to find the best rates. Some financial institutions might have better rates for FHSA and other types of accounts.
Remember, you’re not obligated to start an FHSA account with your current bank just because you’re their customer. You have the freedom to select another bank that provides better rates for FHSA.
What is FHSA?
The First Home Savings Account (FHSA) is a new registered plan designed to empower first-time homebuyers, enabling the tax-free accumulation of funds for their first home purchase within specified limits.
In Budget 2022, the government of Canada proposed creating a new registered account to help Canadians tackle the issue of home affordability. The Canadian government introduced the First Home Savings Account (FHSA) to help individuals save up to $40,000 to purchase their first home.
The FHSA combines the tax benefits of the Registered Retirement Savings Plan (RRSP) and the Tax-Free Savings Account (TFSA). By contributing to your FHSA, you will enjoy the advantage of tax deductibility, like the RRSP, while withdrawals intended for acquiring your primary home will remain non-taxable, resembling the benefits of a TFSA.
This FHSA is a great saving vehicle for Canadians looking to save towards their home-buying goals. It empowers them to accrue funds dedicated to their housing aspirations, all while alleviating concerns about potential tax obligations.
How Does FHSA Work?
With the newly registered account, First Home Savings Account (FHSA), Canadians can save up to $40,000 towards purchasing a single-family home. This account has an annual contribution limit of $8,000.
However, unused contribution rooms can be carried forward to the next year. This is similar to RRSP and TFSA contribution space. For example, if you contribute $5,000 in 2023, you will have $11,000 contribution room available to you in 2024.
FHSA offers saving opportunities on a tax-free basis. The money in your FHSA can be used for investments like mutual funds, bonds, stocks, and GICs. You don’t have to worry about paying taxes on capital gains or interest earned. You don’t have to repay the funds you withdraw from your FHSA account.
Also, you must use your contributed funds within 15 years of opening your FHSA account or before you turn 71 (whichever comes first). If you don’t, your account will be closed. If you don’t intend to use your FHSA savings within the first 15 years, you can transfer it to your RRSP.
When you want to purchase your first home, you will submit a request to your account issuer to confirm if you meet the criteria to make a qualifying withdrawal. If you qualify for a withdrawal, your money will be sent to your bank account, and you can put the full money towards your down payment.
Once you withdraw to purchase your home, you must close your FHSA account within one year of your first withdrawal.
FHSA Eligibility Requirements
To be eligible for FHSA, you must be a Canadian resident aged 18 or older but no more than 71 years as of December 31 of the year you establish an FHSA and possess a valid Social Insurance Number (SIN), while also meeting the criteria of being a first-time homebuyer.
Some of the FHSA eligibility requirements include the following:
- You must be a Canadian resident (Immigrants who want to open an FHSA account must be residents of Canada).
- You must be at least 18 years old at the time of your application.
- You must be a first-time home buyer. You cannot have your own home in the year the account is opened or four years before that year.
- The account is meant for primary residences, not investment or leisure properties.
- You can have multiple FHSA, but you must not exceed your yearly or total contribution limit.
Talking with a financial advisor before you open your FHSA account is best. A financial advisor will help and guide you on the investments that best fit your financial needs and goals while considering your risk tolerance.
If you find that FHSA isn’t right for you now, consider other registered accounts like the TFSA, RRSP, RESP, or RRIF.
Benefits of FHSA Canada
THe First Home Savings Account (FHSA) has many attractive features that help first-time home buyers save and finally purchase their first home. However, there are also some drawbacks to this FHSA account which makes the account not the right choice for every Canadian.
It’s important to carefully consider the pros and cons of FHSA before deciding whether to open an account. Let’s look at the pros:
- FHSA is tax-deductible, which helps you reduce your income tax amount
- It allows carry-over amount. This can be beneficial if you expect to earn more in the future, as your future taxes can be heavily reduced
- You have 15 years to use the account; young Canadians will find this attractive
- Qualifying withdrawals are tax-free
- You can hold investments in your FHSA account, and they will grow tax-free
Downsides of FHSA in Canada
- Unfortunately, FHSA is only available to first-time home buyers.
- The $40,000 contribution limit might be a good starting point for a down payment but won’t be enough to cover the down payment for most houses in Canada.
- FHSA comes with very strict withdrawal rules, and this makes it difficult to get immediate access to your savings, unlike TFSA.
- You cannot combine FHSA with your Home Buyers Plan.
- You can only open FHSA for 15 years, which might not be enough time for most people due to life circumstances.
FHSA Contributions: How Much Can You Contribute?
FHSA contributions can be up to $8,000 a year with a lifetime limit of $40,000. The FHSA has a lifespan of 15 years, after which the funds must be transferred to either an RRSP or RRIF. However, the income and gains resulting from your FHSA contributions are entirely tax-free.
In 2024, you can contribute up to $8,000 annually to your FHSA, regardless of when you open the account during the year. This annual contribution limit pertains only to the contributions made within that specific calendar year.
Unlike RRSP, any contributions made within the first 60 days of a year won’t be attributed to the previous year’s taxes. The CRA provide basic information to help you determine how much contribution room you have each year. You can claim a deduction for contributions made to your FHSA each year.
Every Canadian can hold more than one FHSA account, but their contributions for each FHSA must be within the government’s annual and lifetime contribution limits.
Like RRSP and TFSA, taxes on over-contributions apply to each month that your FHSA is over the limits. A rate of 1% tax applies to the highest amount of excesses each month. For over-contributions, you can request a transfer to your RRSP, a tax-free withdrawal, or wait for the following year so your annual contribution room absorbs the excess contributions.
Carry-forward Contributions
You can carry forward your unused annual contribution limits to the following year. So if you contribute less than $8,000 in one year, you can carry forward the unused amount to subsequent years (subject to your lifetime contribution limit of $40,000).
Carry-forward contributions only begin after you open your FHSA for the first time. If you are a first-time home buyer, you can open your FHSA immediately, even if you don’t have any funds to contribute right now.
If you open your FHSA in 2023 but don’t have any money to contribute, you could contribute up to $16,000 in 2024 ($8,000 annual contribution room for 2023 plus $8,000 annual contribution room for 2024).
Can you transfer funds out of your FHSA?
You can transfer your money from one FHSA to another FHSA, an RRSP, or an RRIF on a tax-free basis. Transferring your funds from an FHSA to an RRSP or an RRIF will not reduce or limit your available RRSP contribution room.
Also, it would not reinstate your annual or lifetime FHSA contribution limit. When you transfer your funds, they will be subject to the rules applicable to RRSP and RRIF, including tax consequences of withdrawing them from the account.
You can transfer funds from your RRSP to your FHSA on a tax-deferred basis, subject to the annual and lifetime FHSA contribution limit. The transfers wouldn’t be deductible and wouldn’t also reinstate your RRSP contribution room.
FHSA Withdrawals
The First Home Savings Account was designed to help home buyers, and only withdrawals put toward purchasing your first home will qualify and receive tax-free benefits.
To make a qualifying withdrawal, you must follow the withdrawal rules:
- Be a first-time home buyer
- Reside in Canada at the time of your withdrawal
- Must have a written agreement to buy or build a qualifying home before October 1 of the year before the year of withdrawal
- You must intend to occupy the qualifying home within one year after purchase or building as your principal place of residence.
- The qualifying home must be a housing unit located in Canada
- If you owned a share of a cooperative housing corporation that gives you the right to own and have an equity stake in a home located in Canada, you could make withdrawals
- You can withdraw your total FHSA funds on one withdrawal or in series on a tax-free basis once you meet the qualifying withdrawal requirements
- You must make qualifying withdrawals of your FHSA money within 30 days of moving into your home
- Spouses can contribute from their individual FHSA funds if they are buying a home jointly
Your withdrawals will not qualify and can be subject to withholding taxes if:
- You are a non-resident of Canada
- You do not reside in the home you intend to purchase or build
- You are a citizen of the US. US citizens will be subject to US taxation rules and Canadian taxation rules.
- You withdraw and don’t use it towards purchasing a home.
Non-qualifying withdrawals would be included in your income, and the financial institutions will collect and remit withholding tax, consistent with taxable RRSP withdrawals. Non-qualifying withdrawals will not reinstate your annual or lifetime contribution limit.
What Type of Investment Can an FHSA Hold?
The investments allowed for FHSA are the same as that of TFSA. All the prohibited and non-qualified investment rules that apply to other registered plans will also apply to FHSA. These rules will help to disallow non-arm’s length investment and investment in assets.
The investments allowed in your FHSA include the following:
- Mutual funds
- Government and corporate bonds
- Stocks
- Bonds
- Publicly traded securities
- Guaranteed investment certificates (GICs)
How to Open an FHSA Account
To open your FHSA starting from 2023, you can go to banks, credit unions, or any financial institution that issues RRSP and TFSA in Canada. You must confirm your eligibility to an eligible issuer.
Financial institutions will file annual information returns with the CRA for every FHSA they administer. The CRA uses this information to provide the plans and basic information to Canadians to help them determine how much funds they can contribute to their FHSA each year. You must monitor your limits to avoid over-contributions.
For each withdrawal, you will submit your request to your FHSA issuer and confirm your eligibility. Your issuer will prepare an information slip stating the amount of the withdrawal when you make any withdrawals.
FHSA Vs HBP
While each of them has pros and cons, it is important to consider them carefully to decide which best suits your goals and needs.
With the Home Buyers Plan, you can withdraw up to $35,000 from your RRSP and pay back the funds to your RRSP over 15 years, subject to eligibility and conditions. However, funds withdrawn from your FHSA need not be paid back.
However, you cannot make an FHSA withdrawal and a withdrawal from your RRSP under the HBP for the same qualifying home purchase. You must decide which option suits you best.
You can transfer your FHSA funds to your RRSP if you don’t intend to buy a home within 15 years. You can withdraw the money under the HBP whenever you want.
If you contribute first to your RRSP and then transfer to your FHSA, you will lose that RRSP room. However, if you contribute to your FHSA account and transfer to your RRSP, the transfer doesn’t limit your RRSP room. You can create more RRSP rooms effectively when you start contributing first to your FHSA.
Final Thoughts on FHSA
If you plan on buying your first home within the next 15 years, the FHSA might be an excellent option. You can use its income tax deductions and investment opportunities and grow your money tax-free.
And if you do change your mind in the near future, you can transfer the money saved in your FHSA to your RRSP. However, funds will be subject to taxes when you withdraw from the RRSP.
Top Questions About FHSA Canada
What Happens If I Don’t Purchase A Home With My FHSA Funds?
If you don’t purchase a qualifying first home with the funds in your FHSA by the earlier:
- The end of the 15th anniversary of your FHSA
- When you turn 71
Your FHSA will cease to exist, and the plan will be closed. Any unused balance in your FHSA will be transferred to your RRSP or RRIF or can be withdrawn on a taxable basis.
If your account is not closed after its ‘cessation date’ or loses its FHSA status, you will be deemed income inclusion equal to the fair market value of all FHSA property before the cessation of the FHSA status.
Can I Contribute to my Spouse’s or Child’s FHSA?
Only the FHSA holder can deduct contributions made to their FHSA. You cannot claim a deduction if you contribute to your spouse’s FHSA.
However, the legislation allows you to make FHSA contributions with funds your spouse provides without the attribution rules that apply to the income earned in the FHSA from these contributions.
What Happens to my FHSA on my Death?
Like TFSA, you can designate your spouse as your successor, and the FHSA would maintain its tax-free benefits after your death. If your designated successor meets the FHSA eligibility criteria, they will be the FHSA new holder when you die.
This transfer doesn’t affect your spouse’s FHSA contribution limit. If your spouse isn’t eligible for FHSA, the funds will be transferred to an RRSP or RRIF of the spouse and withdrawn on a taxable basis.
However, if your designated successor is not your spouse or common-law partner, your funds will be withdrawn and given to them. The withdrawn funds would be included in the income of your successor for tax purposes.
What Happens to my FHSA in the case of Marital Breakdown?
In case of a breakdown in your marriage or common-law partnership, an amount will be transferred directly from your FHSA to your spouse’s FHSA, RRSP, or RRIF.
This transfer will not restore your contribution room or count against the contribution room of your spouse. If your spouse has over-contributed, the proposed amount will be reduced.
What Happens to my FHSA if I Emigrate from Canada?
If you leave Canada, you can continue contributing to your FHSA but cannot make a qualifying withdrawal. You must be a resident of Canada at the time of withdrawal and must reside in Canada up to the time the qualifying home is bought or built.
