How the First Home Savings Account (FHSA) works

Buying your first home can feel like running a marathon with no finish line in sight. Prices keep climbing, and saving enough for a down payment seems harder every year. That’s where the First Home Savings Account (FHSA) steps in.

The FHSA is a new financial tool for Canadians aiming to buy their first home. It’s designed to help you save faster, get tax advantages, and make homeownership more achievable.

Curious about how it really works? Let’s break it down step by step in simple, human terms.

What is the First Home Savings Account (FHSA)?

The First Home Savings Account is a special savings plan created by the Canadian government. It allows first-time homebuyers to save up to $8,000 a year, with a lifetime maximum of $40,000.

Think of it as a hybrid between a Tax-Free Savings Account (TFSA) and a Registered Retirement Savings Plan (RRSP). Like an RRSP, contributions are tax deductible. Like a TFSA, withdrawals for a qualifying home purchase are tax-free.

This combination gives you a powerful way to save for a down payment while lowering your tax bill. It’s a win-win for anyone dreaming of owning their first home.

The account must be used to buy a qualifying home within 15 years. If you don’t buy within that time, different options apply—which we’ll cover later.

Where can you get an FHSA?

You can open an FHSA through most financial institutions in Canada. Major banks, credit unions, and online investment platforms now offer them.

Each provider might have slightly different features, so it’s worth comparing before you open one. Some offer self-directed accounts, letting you choose investments like ETFs or mutual funds. Others focus on simple savings plans with fixed interest.

Before signing up, confirm that your provider is a qualified FHSA issuer. This ensures your contributions and withdrawals are recognized for tax purposes.

Opening an account is straightforward. You’ll need to verify your identity and confirm you meet the “first-time homebuyer” definition—meaning you haven’t owned a home in the past four years.

It’s smart to open one early. Even if you can’t contribute much now, your contribution room accumulates and carries forward.

What can go into an FHSA?

Your FHSA can hold many types of investments. It’s not just a plain savings account.

You can include cash, mutual funds, exchange-traded funds (ETFs), bonds, and even guaranteed investment certificates (GICs). This flexibility lets you choose a risk level that matches your goals.

For example, if you plan to buy in two years, safer investments like GICs might suit you better. But if your goal is five or ten years away, growth-focused options like ETFs could help your savings grow faster.

You can contribute up to $8,000 per year until you hit the lifetime cap of $40,000. Unused annual room carries over, but only up to $8,000 per year.

Contributions don’t have to be made all at once. You can deposit monthly or whenever you have extra funds. The key is consistency—small contributions add up faster than you think.

Can you have an FHSA at the same time as a TFSA and RRSP?

Yes, absolutely. The FHSA doesn’t replace your TFSA or RRSP. You can have all three at once.

Each account has a different purpose. The TFSA helps you grow savings tax-free for any goal. The RRSP focuses on retirement. The FHSA targets your first home.

You can even combine them strategically. For example, you could move funds from your RRSP or TFSA into your FHSA to maximize your home savings.

However, remember that transfers from a TFSA don’t give you new tax deductions. Transfers from an RRSP do count as FHSA contributions, but they don’t create additional RRSP deduction room.

It’s wise to plan carefully with a financial advisor or use online calculators. Combining these accounts effectively can help you balance short-term goals and long-term security.

Are my FHSA contributions tax deductible?

Yes, your FHSA contributions are tax deductible—just like RRSP contributions. That means you can reduce your taxable income by the amount you contribute.

For example, if you earn $70,000 and contribute $8,000 to your FHSA, your taxable income drops to $62,000. You’ll pay less tax, and your refund may be larger.

You can claim the deduction in the year you contribute or carry it forward to a future year. That flexibility helps if your income fluctuates.

Unlike the RRSP, you don’t have to make contributions before a specific deadline in February. FHSA contributions count for the year they’re made, no matter when.

And the best part? When you withdraw the money to buy a qualifying home, it’s tax-free. No repayment required.

How does the FHSA compare to the RRSP Home Buyers’ Plan and a TFSA?

Let’s put the FHSA side by side with its closest cousins—the RRSP Home Buyers’ Plan (HBP) and the TFSA.

Under the RRSP Home Buyers’ Plan, you can withdraw up to $35,000 from your RRSP to buy your first home. However, you must repay it over 15 years, or it becomes taxable.

The FHSA doesn’t require repayment. Once you withdraw for a qualifying purchase, you’re done. No strings attached.

The TFSA offers tax-free growth and withdrawals for any purpose, including a home purchase. But TFSA contributions aren’t tax deductible, so you miss out on the upfront tax break.

In short, the FHSA gives you the best of both worlds—tax deductions like an RRSP and tax-free withdrawals like a TFSA.

If you use all three together, your savings power multiplies. Many financial planners recommend filling your FHSA first if you’re saving for a home.

What happens to your FHSA if you don't buy a home?

Let’s say life takes a turn, and you decide not to buy a home. Don’t worry—your savings won’t vanish.

If you don’t use the funds within 15 years or by age 71, whichever comes first, you have options.

You can transfer the full amount tax-free to your RRSP or RRIF (Registered Retirement Income Fund). This keeps your investment sheltered and avoids immediate tax.

However, if you withdraw the funds for non-home purposes, they become taxable income for that year.

In other words, the government still rewards you for saving responsibly. You either get a home or a boost to your retirement savings. Not a bad outcome either way.

Still, it’s smart to plan ahead. If you’re unsure about buying, revisit your goals every few years and adjust your strategy.

Conclusion

The First Home Savings Account (FHSA) is one of the most promising tools for future homeowners in Canada. It combines tax advantages, flexible investment choices, and long-term growth potential.

Opening one early can make a real difference, even if you start small. Every dollar saved under this plan brings you closer to owning your first home.

Whether you’re just starting your career or finally ready to put down roots, the FHSA helps you take control of your financial journey.

It’s not just another account—it’s a step toward making your dream home a reality.

So, are you ready to open your FHSA and start building your future today?