An offset account is one of the most powerful interest-saving tools on a home loan. Used properly, it can save tens of thousands of dollars over the life of your loan — without you needing to make extra repayments.
Here's exactly how it works, and how to maximise the benefit.
What Is an Offset Account?
An offset account is a transaction account linked to your home loan. It works like a normal bank account — you can deposit your salary, pay bills from it, and use a debit card.
The key feature: the balance in your offset account is "offset" against your loan balance for interest calculation purposes. Interest is charged on the net difference, not the gross loan balance.
Example
| Item | Amount |
|---|---|
| Home loan balance | $600,000 |
| Offset account balance | $50,000 |
| Interest calculated on | $550,000 |
Even though you still owe $600,000, the bank only charges interest on $550,000.
How Much Does It Save?
At 6.5% interest, $50,000 in offset saves about $3,250/year in interest — money that would otherwise have been paid to the bank.
Over 25 years (assuming you maintain that balance), that's $80,000+ in interest saved and your loan paid off years earlier.
Why It's Different to Just Paying Down the Loan
The savings are mathematically identical to paying $50,000 off the loan. The advantage: the money stays in your account. You can:
- Use it for emergencies without applying for redraw
- Spend it on a car or renovation without complicated transfers
- Move it back into the offset whenever cash flow allows
You get the interest savings while keeping flexibility.
Want to maximise your offset benefit?
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How to Maximise Your Offset
1. Salary Direct to Offset
Have your salary deposited directly into the offset account. Even if you spend most of it during the month, having it sit there for 2–3 weeks reduces interest.
2. Use Credit Card for Spending
Use a credit card with an interest-free period for everyday spending. Pay it off in full each month from the offset. This keeps your offset balance higher for longer.
3. Keep Emergency Fund in Offset
Instead of a separate savings account earning low interest, park your emergency fund in the offset. The interest "saved" is typically much higher than savings account interest you'd otherwise earn.
4. Park Tax/Bills Money
If you save throughout the year for tax bills, school fees, or holidays, keep that money in the offset until it's needed.
Offset and Investment Loans
For investors, offset accounts are particularly valuable. Unlike redraw, offset doesn't affect the deductibility of interest. You can build savings in your offset without worrying about the ATO's "purpose test" complications.
Common Offset Mistakes
- Not using it — many borrowers have an offset facility but leave only $1,000 in it
- Splitting savings across accounts — money in a savings account earning 4% is worse than the same money offsetting a 6.5% loan
- Paying for offset you don't need — if you can't maintain at least $5,000 in offset, the package fee may not be worth it
Maximise your offset savings
We'll review your loan structure and show you how to set up your accounts to maximise savings.