The Royal Bank of Canada (RBC) has experienced an impressive response to its recently launched First Home Savings Account (FHSA), a program designed to assist prospective homebuyers in saving and investing for a down payment tax-free.
In an official news release on Thursday, RBC revealed that since the program’s inception on April 1, “tens of thousands” of FHSA accounts have been opened by Canadians. The bank expressed excitement at the high level of interest, particularly among younger individuals seeking to build a down payment for their first home.
Flora Do, Vice President of Investments Transformation and Client Segments at RBC, stated, “Since our April launch, tens of thousands of RBC FHSAs have been opened by Canadians — phenomenal early uptake of this innovative way to save and invest for a first home.”
Although RBC did not provide exact figures for the number of accounts opened, the bank did share some compelling statistics. Notably, 26 percent of FHSA holders have already contributed the maximum annual amount of $8,000 or most of it. Similarly, a substantial proportion of account holders are making regular pre-authorized contributions.
RBC revealed that its FHSA holders primarily consist of clients between the ages of 25 and 34, accounting for 56 percent of the bank’s account holders. The next largest age group is clients aged 35 to 44, constituting 20 percent of the FHSA holders, followed by those aged 18 to 24 at 18 percent, and clients aged 45 and older at six percent.
According to RBC, the most common investments made using FHSAs are exchange-traded funds (ETFs) and stocks.
With the FHSA, account holders can start saving for up to 15 years, with an annual deposit cap of $8,000 starting from the account’s opening year, and a lifetime contribution limit of $40,000. Similar to a Registered Retirement Savings Plan (RRSP), deposits into the FHSA can be claimed as deductions against taxable income.
Investments within the account can grow and be withdrawn tax-free if used for a down payment, similar to a Tax-Free Savings Account (TFSA).
Any unused portion of the annual contribution limit can be carried forward into the following year, up to $8,000. Additionally, any unused savings can be transferred tax-free into an RRSP or Registered Retirement Income Fund (RRIF).