How an offset account saves you interest
An offset account is a transaction or savings account linked to your home loan. Each day, the lender subtracts the offset balance from your loan balance before working out interest. Your repayments stay the same, so more of each repayment goes to the loan itself, and you pay the loan off sooner.
How much an offset account saves
| Offset balance | Interest saved | Loan paid off sooner |
|---|---|---|
| $10,000 | $33,276 | 0 yr 10 mo |
| $30,000 | $92,000 | 2 yr 4 mo |
| $50,000 | $142,161 | 3 yr 8 mo |
| $100,000 | $240,069 | 6 yr 2 mo |
$500,000 loan, 6%, 25 years left, offset balance kept steady.
A tax-free return
Money in an offset doesn't earn interest, it saves interest, so there's no tax to pay on it. At a 6% home loan rate, $30,000 in offset saves $1,800 in the first year. To get the same after-tax return from a savings account, someone on a 32% marginal rate would need about 8.8% interest.
Offset vs redraw
Extra repayments with redraw save the same interest. The difference is flexibility and tax: an offset keeps your savings separate, and if the home becomes an investment property later, the full loan stays tax-deductible. Compare loans with the mortgage calculator, or see if it's time to refinance.
Common questions
How does an offset account work?
The balance in an offset account is subtracted from your loan balance before interest is charged. With $500,000 owing and $30,000 in offset, you only pay interest on $470,000.
Is an offset account better than a savings account?
Usually, yes. Offset savings effectively earn your home loan rate, and because you save interest rather than earn it, there's no tax. At 6% and a 32% tax rate, a savings account would need to pay about 8.8% to match.
Offset account or redraw?
Both save the same interest. An offset keeps your money separate and easy to access, and it's better if the home might become an investment property later, because paying down the loan can reduce your future tax deductions.
Do offset accounts cost extra?
Often. Loans with offset accounts can have a slightly higher rate or a yearly package fee of around $300–$400. Make sure your offset balance saves more than the extra cost.
General information only, not financial or tax advice. Speak to a registered tax agent or licensed adviser about your situation.