Saving for a first home isn’t easy. Between rising property prices and everyday expenses, putting money aside for a deposit takes real effort.

That’s why finding the right savings strategy matters. Some people stick with a standard savings account , while others look at the First Home Super Saver (FHSS) Scheme for potential tax perks and investment growth.

But how do the two compare? And which one might suit your savings plan? Let’s break it down to give you more confidence to choose the right route for you.

What is the First Home Super Saver (FHSS) Scheme?

The First Home Super Saver (FHSS) Scheme is a government initiative designed to help first-home buyers save for a deposit faster. It lets eligible individuals make voluntary contributions to their superannuation and withdraw them later to buy a home.

Since super funds typically offer lower tax rates than regular income, the scheme can provide a tax-effective way to save. But there are rules and limits to consider.

How does it work?

• You can contribute up to $15,000 per year , with a total cap of $50,000 in voluntary savings.
• Contributions are taxed at 15% if made before tax ( salary sacrifice ). If you contribute your after-tax income, your contributions won’t be taxed, since you will have already paid income tax.
• You can apply to withdraw your savings once you're ready to buy a home. The Australian Taxation Office (ATO) calculates your total withdrawal, including investment earnings.
• Funds must be used for a first home purchase within a set timeframe.

The FHSS isn’t automatic – you need to make your own contributions (not your employers' contributions) and apply to the ATO when you want to withdraw. If you don’t buy a home, the money stays in your super until retirement.

It’s a structured way to boost savings with tax advantages, but it comes with rules that might not be appropriate for everyone. If you want a deeper dive into the First Home Super Saver Scheme, you can read more about how you can benefit from the FHSS .

How do savings accounts work?

A savings account is a simple way to store money while earning interest. Unlike everyday transaction accounts , which focus on spending and bill payments, savings accounts are designed to help you grow your balance over time.

With a savings account, banks reward you for saving by offering interest on your balance. Many accounts offer higher rates if you meet certain conditions, such as making regular deposits or limiting withdrawals. In contrast, everyday accounts offer little to no interest because they are meant for frequent transactions.

Key features of savings accounts:

• Interest rates vary and may change over time.
• Your money is easily accessible, but some accounts offer better rates if withdrawals are limited.
• There are no tax benefits – any interest earned is taxed at your marginal tax rate.
• Savings accounts are separate from everyday accounts, helping people keep their savings untouched.

Savings accounts are easy to set up and flexible, making them a popular choice for short-term savings goals. However, because interest rates can be low, returns might not always keep up with inflation.

What are the potential benefits of the FHSS?

The FHSS Scheme offers several benefits for those looking to save for a home deposit.

Lower tax rate on contributions

As mentioned, voluntary pre-tax contributions to super are generally taxed at 15% , which can be lower than the tax rate on regular income. Earnings on those contributions are also taxed at 15% . This means more of your money goes towards savings instead of tax.

Potential for higher returns

Savings inside super are typically invested in a mix of assets , which may offer higher returns over time compared to standard savings accounts. While investment returns are never guaranteed , long-term growth in a diversified super portfolio can potentially outpace savings account interest rates. (At the same time, there does exist the risk that your portfolio may underperform when compared to interest rates).

Compounding effect

Because earnings within super are reinvested , savings may grow more over time. This compounding interest can help increase the total amount available when withdrawing for a home deposit.

Encourages disciplined saving

Since funds in the FHSS can’t be accessed for everyday spending , it reduces the temptation to dip into savings. This can make it easier to stay on track with a home deposit goal.

Though the FHSS provides a tax-effective way to save with investment growth potential, it comes with restrictions. Whether it’s the right fit depends on your financial goals and circumstances.

What are the potential benefits of savings accounts?

Savings accounts offer a simple and flexible way to set aside money. Here are some of the benefits.

Easy access to funds

As mentioned, savings accounts allow immediate access to money whenever you need it. There are no waiting periods or approval processes.

No restrictions on use

Funds can be used for any purpose , not just a home deposit. This makes savings accounts useful for people who want financial flexibility.

The FHSS requires eligibility checks , ATO approval, and a withdrawal process before accessing funds. As the scheme is designed for home deposits , you may face withdrawal limitations if you later decide against buying a home.

Simple to set up and manage

Opening a savings account is quick and easy , usually requiring only ID and a small deposit. You can also set up automatic deposits into your savings accounts when you get paid – without lifting a finger. There’s no need to apply through the ATO or meet specific conditions to withdraw funds.

While savings accounts provide convenience and control, they generally don’t offer the tax benefits or potential investment growth of the FHSS. Consider what this means for your preferences and priorities.

Which option suits different savers?

The best savings option for buying your first home depends on individual goals. Choosing between the two depends on what matters more to you – maximising savings potential or keeping funds readily available.

Here’s a side-by-side comparison:

Feature	FHSS	Savings account
Tax benefits	Pre-tax contributions taxed at 15%, potential tax offset on withdrawals	No tax benefits, interest taxed at standard income rate
Potential returns	Earnings based on super fund investments, returns vary	Interest paid by the bank
Access to funds	Requires ATO approval, funds only for a first home deposit	Immediate access in most cases, no restrictions on use
Setup process	Requires voluntary contributions through super	Quick and easy to open online or in a branch
Flexibility	Can’t withdraw for other purposes, must use within a set timeframe (otherwise it will contribute toward your general super funds)	Can usually withdraw any time for any reason
Suited for	Long-term savers focused on maximising returns	Short-term savers who need immediate access

Could someone use both the FHSS and a savings account?

Yes, some people choose to use both the FHSS and a savings account to build their home deposit. This approach can offer a mix of benefits – tax savings and investment potential from the FHSS, plus easy access and flexibility from a savings account.

A savings account can cover short-term expenses, like unexpected costs or upfront home-buying fees, while the FHSS helps maximise savings over time. Since FHSS funds require ATO approval before withdrawal, having extra money in a savings account could provide peace of mind during the home-buying process.

There's also the fact that, for most Australian home purchases, the FHSS contribution caps won't be sufficient to cover an entire deposit. As such, most home buyers would need to supplement their FHSS savings with another source – which could include money in a savings account.

Saving smarter: which option suits your needs?

There’s no single right answer. As we’ve said, the FHSS offers tax advantages and investment potential, while savings accounts provide flexibility and easy access.

The right choice depends on your financial priorities. If growing savings efficiently is the focus, the FHSS could be the way to go. If access and control matter more, a savings account might be for you. And remember, there are also perks to using both approaches.

The best approach depends on your goals, timeline, and need for flexibility . Understanding how each option works puts you in control of your savings strategy. No matter which path you take, the key is to start saving with a plan that works for you.