FHSA vs RRSP: Which Is Better for Saving for a Home?

Introduction

Canadian first-time homebuyers have access to two powerful registered account options to help save for a down payment: the First Home Savings Account (FHSA), introduced in 2023, and the Home Buyers’ Plan (HBP) through the Registered Retirement Savings Plan (RRSP). Understanding the differences between these options — and how they can be used together — can significantly improve a buyer’s ability to accumulate a down payment and reduce their tax burden.

The First Home Savings Account (FHSA)

The FHSA is specifically designed for first-time homebuyers and offers exceptional tax advantages. Contributions are tax-deductible (reducing taxable income in the year of contribution), growth within the account is tax-free, and qualifying withdrawals for a first home purchase are completely tax-free — no repayment required. The annual contribution limit is $8,000, with a lifetime maximum of $40,000 per person.

The FHSA is unambiguously the better option for dedicated first-time home savings in most circumstances, because of the no-repayment advantage on withdrawal. There is no obligation to repay the funds as there is with the RRSP Home Buyers’ Plan.

The RRSP Home Buyers’ Plan

The Home Buyers’ Plan allows first-time buyers to withdraw up to $60,000 from their RRSP tax-free for the purchase of a qualifying home. This is an increase from the previous $35,000 limit, reflecting government efforts to support housing affordability. The key difference from the FHSA is that HBP withdrawals must be repaid to the RRSP over 15 years, with annual repayments of at least 1/15 of the amount withdrawn. If repayments are not made, the unpaid portion is added to taxable income for that year.

Using Both Together

The most powerful strategy for maximizing a down payment is to use both the FHSA and the RRSP Home Buyers’ Plan together. A first-time buyer couple could potentially access $40,000 each from their FHSAs (for a combined $80,000) plus $60,000 each from their RRSPs through the HBP (for a combined $120,000), giving them access to up to $200,000 in registered savings for a down payment — all tax-free at withdrawal from the FHSA and RRSP HBP amounts, with the HBP portion to be repaid over time.

Practical Advice

Open an FHSA immediately if you qualify, even if you are not actively saving for a home yet — the contribution room accumulates from the date of opening. Maximize your FHSA contributions first before directing additional savings to your RRSP for home-buying purposes, given the FHSA’s superior tax treatment. Consult with a financial advisor to develop a savings strategy tailored to your income, tax situation, and timeline.