Q I am a single woman in my late 20s saving to buy my first home in two years' time. Should I be saving into my KiwiSaver account or into a bank account? Does it make any difference? I am self-employed and contribute $100 a month into my KiwiSaver account — enough to get the annual Government contribution.
A Withdrawing money from KiwiSaver for a First Home is relatively easy, and you should be able to withdraw all but $1000 from your account when the time comes. The main criteria are that you have been in KiwiSaver for at least three years, and you are buying your first property (which you intend living in for at least six months).
Saving into your KiwiSaver account rather than into a bank account has some benefits. You won't be able to dip into your savings as you may with a bank account. You can watch your savings grow and when you start house hunting you will have a fair idea of how much you will be able to withdraw. On the other hand your savings are locked in. Should your plans change you may regret not being able to access your money for another purpose e.g. buying a business.
Make sure you assess the risk profile of your KiwiSaver, as the more aggressive funds may drop in value by say 20 per cent in a sharemarket downturn, and this would mean less money for your dream home. A general rule of thumb is to select a lower risk fund if you plan to spend the money within three years, particularly if you have a large amount saved. You will realise that there is a trade-off — moving to a lower risk fund will reduce the risk of a big fall in value, but it will also mean lower returns. Most KiwiSaver managers also offer a cash fund, and that is a good option as you get closer to house hunting time. Find out from your fund manager how to go about switching from one fund to another. Some require a form to be filled out and signed, others have an app that enables you to do it online.
You may also qualify for the KiwiSaver First Home Grant, worth up to $5000 for an existing home or $10,000 for a new build. This money is available to KiwiSaver members who meet certain criteria. You need to have contributed for three to five years, earn less than $85,000 per annum (or $130,000 for a couple) and buy a house within the price cap for your region.