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Offset Accounts

Save on interest paid and shave years off your home loan

An offset account is a savings or transaction account that is linked to your home loan. The balance in this account ‘offsets’ daily against the balance of your home loan before interest is calculated. An offset account can help you cut years off your home loan term and save money on interest, without even making an extra repayment.

Here’s an example.

If your mortgage balance is $200,000 and you’re holding $20,000 in your 100% offset account, you’ll only have to pay interest on a mortgage balance of $180,000.

Because your home loan interest is calculated daily, every dollar in your offset account can save you money in interest. That means more of your repayment goes towards paying down the principal, helping you to repay your home loan faster.

Sound appealing? There are two basic types of offset account to choose from. With a 100% offset account, all of the money in your account is offset against your mortgage balance, whereas a partial offset account only offers a lower interest rate on the portion of your mortgage that equals its balance. Obviously, this is not as effective as a 100% offset account.


  • 100% offset account: 100% of the funds in your offset account are applied against your home loan balance before interest is calculated.
  • Partial offset account: A partial offset gives you a reduced interest rate on the part of your home loan equal to the balance of your offset account. This can be far less effective than a 100% offset account.
  • It’s simple to set up and manage. All you have to do is have your income deposited into this account for an instant effect on the amount of interest you pay, as the interest on your home loan is calculated daily.
  • Convenience & Flexibility. Should you need it, most offset accounts the account allow transactions and transfers giving you the same accessibility as an everyday transaction account.
  • Offset accounts are usually part of a home loan package that incur an annual fee, lower interest rate and other discounts, such as no annual fee credit cards. So, that’s even more money savings!
  • An offset account can be more beneficial than a savings account as the interest you earn on a savings account tends to be lower than the interest charged on a home loan. Meaning there will be no tax on the earned interest, and you’ll also be growing valuable equity on your property.
  • Some lenders offer multiple offset accounts linked to your home loan, so you can manage your finances while still benefiting from the interest saved on your home loan. This can be a great way to save for big expenses such as a holiday or a new car while still saving on home loan interest.
  • Generally only available with variable loans which have higher interest rates and monthly or annual fees.
  • Some Fixed Rate Loans have Offset Accounts, so check on the specific lender.
  • Unless you have sufficient funds in the Offset Account, fees associated may not make the facility worthwhile.
  • Minimum withdrawal limits may apply to some enders.
  • Not always a benefit to an Investor if you have personal debt. May be better placed reducing/offsetting the personal debt, rather than offsetting an investment loan.
  • If you don’t see yourself as a ‘good manager of money’ then the opportunity to access extra funds sitting in your Offset might be too tempting (to ignore) whereas if your extra funds were sitting in your Home Loan (accessible via redraw) you need to make a conscious effort to access them. This subtle difference might make a significant difference to your affairs. This s also where a lender that offers multiple offset accounts may be beneficial.

The ever-increasing cost of living here in Australia has seen us embrace Budgeting tools and Banking Apps for the management of our finances. The existence of multiple Offset Accounts for mortgage holders also enables us to manage our money in a simple and cost effective manner.

The benefit of an Offset Account is nothing new – it is a transaction account linked to your home loan. Every dollar that you have in this account ‘offsets’ the balance of your loan thereby reducing the interest you pay every month.

But the establishment of multiple offset accounts allows the homeowner to create and allocate funds towards future bills or savings plans. The list is endless but could include;

  • Everyday Spending
  • Savings
  • Bills
  • Investment
  • Play
  • Kids Account
  • Your next (post Covid-19) holiday
  • A Tax Account (if you are registered for GST and collect tax)

One of the key benefits though in compartmentalising these future costs now, is it gives you a very clear picture of how much discretionary income you have left. Or to put it another way – it doesn’t give you a false sense of financial well-being by having lots of funds in the one bank account.

But wait there’s more. If you establish a number of Offset Accounts as above and regularly deposit funds into these accounts, the aggregated total of funds held in these accounts ‘offsets’ the balance of your home loan by reducing the interest you pay each month. 

‘Compound Interest’ has been quoted as ‘the 8th wonder of the world’. This isn’t far behind based on its simplicity and bang for your buck.