Understanding Offset Accounts
An offset can give your everyday savings a useful job: reducing the interest charged on your home loan while the money stays in a separate account. The decision is whether that benefit is worth the cost for the balance you actually expect to keep.
How the interest saving works
For a 100% offset, a $500,000 loan with $30,000 in the linked account has interest calculated on $470,000. The $30,000 remains in the account; it has not paid down the loan principal. Most home loan interest is calculated daily, so changing account balances affect the saving. ASIC Moneysmart explains how offsets work.
Put a dollar value on the feature
At an illustrative constant rate of 6% a year, an average $30,000 fully offset for a year gives an approximate gross interest saving of $1,800 ($30,000 × 6%). If the only additional cost were a $300 annual fee, the estimated benefit would be $1,500. A higher loan rate would reduce it further. These are hypothetical figures, not a current offer; actual balances and rates change.
Compare the cost against your usual balance
Look through several months of account activity. Allow for annual bills, school costs, holidays and any purchase you have already planned. Use the balance likely to remain after that spending rather than the highest figure on payday.
Ask for a comparison with a suitable loan without an offset, using the same balance and term. Confirm whether the offset is full or partial, which loan split it can link to and every extra fee or rate difference. A small average balance can make an otherwise useful feature too expensive.
Offset and redraw are different
- Offset: money stays in a separate account with its own transaction and access rules.
- Redraw: extra payments reduce the loan balance. Withdrawing eligible extra repayments increases it again, subject to the lender’s terms.
Check withdrawal limits and access rules before choosing where to keep your emergency money. Redraw availability can change over the life of a loan. CommBank’s redraw guide is one lender example of how available redraw can reduce; your own loan terms determine what applies.
If you may rent the property out later
Speak with your registered tax agent before making extra repayments and later redrawing for private spending. The use of redrawn funds affects interest deductibility, and mixing private and rental purposes can require apportionment. An offset withdrawal and a redraw are different transactions. ATO Taxation Ruling TR 2000/2 on redraw and interest deductions explains the treatment. Keep the loan and transaction records your tax agent needs.
Check the account is actually offsetting
ASIC’s 2026 review found failures in banks’ offset setup and management. A repayment staying the same does not prove the offset is working. Read ASIC’s findings on missed offset savings.
- After settlement, confirm which account is linked to which loan or split.
- Check the interest and offset information in your statements or banking app. Ask the lender to explain it if the benefit is unclear.
- Repeat the check after refinancing or changing products. Keep a record of your request if the lender needs to investigate.
Our repayment calculator does not model an offset balance. For a comparison that includes offsets, see our home loan selection service. If you are reviewing an existing mortgage, start with five prompts for a home loan review.
Compare an offset with the way you save
Tell us the balance you expect to keep and whether you are choosing a new loan or reviewing an existing one. We can explain what is needed to compare the fees, access and likely benefit.
Discuss offset and loan options