Offset accounts: The great home loan scam or a financial gamechanger?

Someone told me offset accounts were scams and I haven't stopped thinking about it.

The offset account is frequently touted as one of the greatest features you can have as part of your home loan.

The more money you keep in your offset account, the less interest you'll need to pay on your loan.

That's because any money in your offset account reduces the amount of your loan value that you pay interest on.

But it has come to my attention recently that there are those who think offset accounts are... scams.

Now, we're not talking the same level of scams that will take your information and all of your money. But a scam in the sense that it forces you to have all of your money in a specific bank account, thereby forcing you to give your business to one institution.

$50k in an offset account vs a savings account

Yes, if you want to maximise the use of your offset account, you do need to keep all of your money where your home loan is. But here's why that isn't such a bad thing.

Even with a high interest savings account your home loan interest rate is likely much higher. This means the amount you're saving in interest costs will likely be more than the amount you earn in savings interest.

You can calculate your own offset account savings using our calculator. As a quick example though, if you had $50,000 in your offset account throughout your 30 year loan of $600,000 with a rate of 6%, you'd save about $189,704. You'd also pay your home loan off 4 years and 5 months early - what a relief!

Let's say you put that $50,000 into a high interest savings account earning one of the highest rates at the moment of 5%. Over the same 25 years that it took someone to pay off their home loan because of their offset account, you'd earn $124,064 in interest. That's not enough to pay off your home loan so you've still got that to worry about too. You can calculate your savings interest here.

Now these are hypothetical calculations because they assume that for 25 years you haven't topped up your savings and your interest rates haven't changed. But they kind of do the job for what I'm saying here.

Serving an 'absolute purpose'

Sydney homeowner Tom Goodwin credits the use of an offset account to paying off his and his wife's home loan within several years.

"My wife and I bought an apartment in late 2012, and we instantly saw the benefits of the offset account," Goodwin said.

"For several years afterwards, we funnelled every bit of cash we got our hands on pretty much straight into the offset account. Salaries, birthday gifts, Christmas presents, bonuses, everything.

"It meant that we paid off the loan substantially more quickly, as the overall interest costs were drastically pushed down."

Mortgage broker Aaron Christie-David said he was surprised anyone would think offset accounts were scams.

"Offset accounts serve an absolute purpose, particularly when you have banks that offer multiple offset accounts.

"Whether you do your bank transfer banking like Scott Pape with the buckets or you just like to have designated accounts for travel, savings, car insurance. Then you have those independent accounts to keep it all separate, but you have multiple offset accounts that are linked to your home loan.

"It's hardly a scam, in fact it's a very smart way of banking."

Wanting a better banking experience

If it's not about the savings then maybe it's about not wanting all of your money at a specific institution. I get it. People can pick and choose their banks based on different services and features, but with your offset account you don't have that choice.

Your home loan might be with a bank which offers minimal perks and an average app, when you want bumper perks and a sleek app experience.

If you're not happy with that experience with your bank then you shouldn't be happy with it for your home loan either. When you're taking out your first home loan or you're refinancing, you can consider the service that provider brings for both its loan and banking experiences.