How an offset account can save you thousands

Rates and Fees verified correct on May 1st, 2017

The easy way to reduce the amount of interest you pay on your home loan each month is to use an offset account

An offset account is a transaction account which reduces the interest payable on your home loan by the amount held in your account.

A reduction in interest can also shorten your loan term, as you'll be able to pay your loan off sooner.

For example, a 100% offset account with $50,000 in it, on a home loan of $300,000, would see interest-only calculated on a balance of $250,000. On a home loan of 5.50% over 30 years, this could amount to a saving of $90,000 in interest, with seven years cut from your home loan.

To calculate how much one would save you, use our offset home loan calculator

Enter your details to speak to a broker from Aussie about a home loan

Are you an Australian Citizen or permanent resident?

Applications are subject to approval. Conditions, fees and charges apply.

Credit services for Aussie Select and Aussie Optimizer products are provided by AHL Investments Pty Ltd ACN 105 265 861 ("Aussie") and its appointed credit representatives, Australian Credit Licence 246786. Credit for Aussie Select products is provided by Residential Mortgage Group Pty Ltd ACN 152 378 133, Australian Credit Licence 414133. Credit for Aussie Optimizer products is provided by Perpetual Ltd ACN 000 431 827.

Aussie is a trade mark of AHL Investments Pty Ltd. Aussie is a partly-owned subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL and Australian Credit Licence 234945. © 2017 AHL Investments Pty Ltd ABN 27 105 265 861 Australian Credit Licence 246786.

By submitting this form, you agree to the privacy policy and the Aussie privacy policy.

Aussie Home Loans Logo

Aussie can save you time and effort by helping you research, organise and apply for your home loan. They compare thousands of home loans to help find the right deal for you. Fill out the form on the left and an Aussie Mortgage Broker will meet you at a time of your choosing to discuss your needs and help you find the right home loan.

Aussie Home Loans Lender Logos

Compare home loans with offset accounts

Rates last updated May 1st, 2017.

Beyond Bank Low Rate Special Home Loan

New special offer rate of 3.83%

March 7th, 2017

IMB Accelerator Home Loan - LVR <=80% $300k+ (Owner Occupier)

Interest rate increased by 0.05%

April 5th, 2017

IMB Essential Home Loan - LVR <=90% (Owner Occupier)

Comparative rate increases by 0.10% | Interest rate increases by 0.10%

April 5th, 2017

View latest updates

Jodie Humphries Jodie
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment
3.64% 3.67% $0 $0 p.a. 80% Go to site More info
ING DIRECT Orange Advantage Loan - $150,000+ (LVR <= 80% Owner Occupier)
A low annual fee and variable interest rate package with offset account from ING DIRECT.
3.89% 4.11% $0 $199 p.a. 80% Go to site More info
IMB Accelerator Home Loan  - LVR <=80% $300k+ (Owner Occupier)
A two year discounted rate which reverts to an ongoing life of loan discount afterwards.
3.89% 4.59% $445 $0 p.a. 80% Go to site More info
Newcastle Permanent Building Society Premium Plus Package Home Loan - New Customer Offer ($150,000+ Owner Occupier, P&I)
Apply for a new owner occupier loan or refinance from another lender and receive this discounted rate.
3.84% 4.22% $0 $395 p.a. 95% Go to site More info
Australian Unity Health, Wealth and Happiness Package - (Owner Occupier)
Get a 0.60% discount on your rate, a 100% offset account and no ongoing fees.
4.05% 4.08% $600 $0 p.a. 90% Go to site More info
AMP Basic Package Variable Rate Loan - (Owner Occupier, P&I)
Interest only option available. No monthly fee basic variable loan.
4.05% 4.09% $350 $0 p.a. 90% Go to site More info
Beyond Bank Low Rate Special Home Loan
A special low variable rate for Owner Occupier with 100% offset account and no application or ongoing fees.
3.83% 3.83% $0 $0 p.a. 70% Go to site More info
NAB Choice Package Variable Rate - $750k+ P&I (Owner Occupier)
Enjoy discounted rates to a range of NAB products. NAB Rewards Points offer available, terms and conditions apply.
4.42% 4.81% $0 $395 p.a. 95% Go to site More info
IMB Essential Home Loan - LVR <=90% (Owner Occupier)
Get a discount on your rate and flexible repayment options with this loan.
4.19% 4.19% $0 $0 p.a. 90% Go to site More info
NAB Choice Package Variable Rate - $250k to $749,999 P&I (Owner Occupier)
A great variable package from NAB which includes offset and redraw features. No application fee.
4.47% 4.86% $0 $395 p.a. 95% Go to site More info
CUA Fixed Rate Home Loan - 2 Year Fixed (Owner Occupier)
A fixed home loan with no ongoing fees and flexible repayments options.
3.84% 4.71% $600 $0 p.a. 95% Go to site More info
ANZ Fixed Rate Home Loan - 2 Year Fixed (Owner Occupier, P&I)
Lock in your rate for 2 years with an interest only option.
4.03% 5.08% $600 $10 monthly ($120 p.a.) 95% Enquire now
Commonwealth Bank Wealth Package Fixed Home Loan - 2 Year Fixed (Owner Occupier) P&I
A package home loan with fee free extra repayments available during the fixed term.
3.99% 4.99% $0 $395 p.a. 95% Enquire now
St.George Fixed Rate Advantage Package -  2 Year Fixed Rate (Owner Occupier, P&I)
A discounted package rate for owner occupiers with the ability to package a Qantas rewards earning Amplify credit card. $1,500 cash back available for refinancers, conditions apply.
3.99% 5.04% $0 $395 p.a. 95% Enquire now

What is an offset account?

An offset account is like a regular transaction account that has been linked to your mortgage account. You can deposit funds at any time and withdraw them again when you need to via ATMs and EFTPOS transactions. You can even pay bills from your offset account online via BPAY, or set up an automatic direct debit agreement with your creditors to have payments deducted from your account.

The primary difference is that every dollar you keep in the account actively reduces, or 'offsets' the amount of interest you pay on your mortgage.

For example, if you have a 100% offset account and have $10,000 in savings sitting in it and your mortgage balance is at $300,000, your interest charges are calculated on the balance of $290,000.

Another way to illustrate how an offset account might work is to imagine that you have a mortgage of $300,000 and you also have $300,000 in savings retained in your offset account. In this example, you would pay absolutely no interest on your mortgage at all.

How does an offset account reduce interest?

When your mortgage is established, the bank will set it up so that interest is calculated on the outstanding balance you owe at the end of each day. The total interest charged for that month is then added together and shown as one interest figure on your statement.

Making one repayment each month means your balance is only reduced once per month. This means your interest is being calculated on a static balance level at the end of every day. You can reduce this slightly by making more frequent payments, such as switching your payment frequency to fortnightly or weekly. Both of these options will reduce your outstanding balance a little more throughout the month, which subsequently lowers the amount of interest the bank is able to charge you.

If you link an offset account to your mortgage and arrange to have your salary and any other income you receive paid into the account, you get the opportunity to reduce your mortgage balance even more frequently. This is because interest on a home loan is calculated daily, so every day you have funds in your offset account, even if you later use them, will help towards reducing the interest payable.

You can see how much money you could save with an offset account below using our calculator.

See our range of calculators here

How does an offset account affect your repayments?

If your loan is set up as a principal and interest loan, where some of your repayment amount covers interest charges and some goes towards the principal, the actual amount you pay each month won't change. You will still pay the same monthly amount to your bank.

However, the ratio of principal to interest will change, depending on how much cash you have in your offset account.

How does offset account affect repayments

Let's work on some actual figures, assuming that you have a mortgage of $300,000 at 6.5% over 30 years.

Principal and interest payments

Your minimum monthly repayments will be $1,896.20. Of that total amount you pay, $1,625 goes towards your interest charges while a measly $271.20 pays down your mortgage balance a little during your first month.

Now, if you had $10,000 sitting in an offset account your repayment would still be the same at $1,896.20 per month. The difference is that you would only pay $1,570.83 in that first month, with $325.37 coming off the mortgage balance.

The cash you had sitting in your offset account actually reduces the amount of interest you pay each month so that the amount that goes towards your mortgage balance is increased. As a result, you end up paying your mortgage off much faster, as this has a significant compounding effect over time.

Interest-only payments

If you have opted for interest-only payments on your home loan, your repayments may be affected by the amounts you have in your offset account. Remember, the amount of interest you're charged is calculated on your daily mortgage balance minus the funds in your offset account.

By leaving funds in your offset account as long as you can before paying bills and living expenses, you subsequently reduce your mortgage balance each day. This means the interest payment you make at the end of each month will be reduced.

Will I earn interest on the savings in my offset account?

You aren't paid any interest for the cash you leave sitting in your offset account. However, you are reducing the amount of interest you pay on your mortgage based on how much you have in the account.

When you think about it, the rate of interest charged on a mortgage is higher than the interest rate you'll earn on your cash sitting in a savings account, so your cash is actually working harder for you in an offset account.

Let's assume you have $10,000. If you put that into a savings account you might earn 4.5% interest on your savings. That's $450 per year in interest earnings that you have to declare to the tax office and then pay tax on.

By comparison, let's put the same $10,000 into an offset account where you're paying 6.5% on your mortgage interest. That's $650 per year in interest charges you don't have to pay, so you're saving money.

Disadvantages of an offset account

  • Offset accounts are usually offered on full featured home loans and some of these loans can have higher interest rates or fees attached to them than a basic home loan.
  • The offset account itself may have an account-keeping fee attached to it.
  • Finally, be sure you know the difference between a partial offset account and a 100% offset account. A partial offset account differs in that it will only offset a percentage of the balance in your offset account, not the full amount.

Why not just pay extra on your mortgage?

Why not just pay extra on your mortgage?

There are benefits to keeping money in your offset account as opposed to your home loan. The first of which is that funds can be kept in your offset account and then used as you would with a debit card. This means you could have your salary deposited into your offset account and then get the benefit of lower interest charges every day you don't use your money. Also, accessing money through a redraw facility can come with minimum redraw amounts and fees, which might make an offset account more attractive than making extra repayments.

Redraw fees

If you ever need to access your extra funds in the future to pay for unforeseen expenses or unexpected bills, you may need to redraw them from your mortgage. Some banks will charge you a redraw fee that you wouldn't have to pay if you simply withdrew that cash from your offset account. There are also some banks that will limit the amount of money you can redraw with each transaction. This may mean you end up redrawing more than you really wanted to, which costs you more in interest in the long run.

Tax deductibility

Let's say you decide to put all your savings into your mortgage in an effort to pay it off quicker. You do this for a few years and then you decide you need a bigger home for your family, but you don't want to sell your existing home. Instead, you want to turn it into an investment property. So you redraw your extra payments out of your mortgage and pay them onto the mortgage for your new family home. This keeps your new mortgage lower and raises your investment loan a little.

If you redraw those extra funds you paid into the mortgage to use as a deposit on your new home, you may face some significant problems when tax time rolls around. By redrawing funds out of your original mortgage and paying them into your new mortgage, you effectively withdrew cash out of your investment for personal use. This is frowned upon by the tax department, as the old loan you now want to use as an investment needs to stay at the balance it was at when you stopped living in it. That's the tax deductible balance the ATO will work on.

Yet, if you left those extra funds sitting in an offset account and then withdrew them to pay the deposit on your new home, the original loan remains untouched. You can reduce your new family home mortgage, but you also get to leave your investment mortgage at a higher balance to maximise your tax deductibility.

Case Study: Bill’s offset account


Bill has a home loan of $300,000 and has worked hard to pay $50,000 in extra payments into the redraw facility. If he purchases a new home and turns the original house into an investment property, his investment loan amount for tax purposes will be $250,000. Even if he withdraws that $50,000 from his redraw facility and raises his mortgage to $300,000, the tax office will consider that he withdrew $50,000 from it for personal use – not investment use.

Maximising the savings you have in an offset account

If you're disciplined with your money, you may have an opportunity to maximise the amount of cash you leave sitting in your offset account each month. Many banks allow you to package up your banking products to receive discounts on account fees and charges.

You might have the chance to package up your mortgage with your offset account, along with a handy credit card, all under the same annual fee.

The majority of credit cards these days come with interest-free days attached. This means you can use the bank's credit to pay for your bills, living expenses and other costs at the beginning of each month. As long as you pay off the whole balance before the due date, you won't be charged interest on those purchases.

If you have your entire salary paid into your offset account each week or fortnight, you're increasing the amount of savings you have in your account. At the same time, you're reducing the amount of interest you pay on your mortgage.

When you add in the benefit of paying for all your bills and expenses on a credit card with interest-free days, you get to leave your salary sitting in the offset account for a longer period of time. When the credit card bill is due, you withdraw the funds from your offset account and pay it down to zero.

As a result, you pay even less interest on your mortgage and you pay absolutely no interest on your credit card. If you can coordinate your finances the right way, this can be an extremely powerful tool.

As mentioned, discipline is key here. It's important that you always spend less on your credit card each month than you earn. The amount of salary and other income going into your offset account needs to cover your mortgage repayments and your entire credit card bill each month, or you end up paying more interest than you really need to.

Offset accounts and fixed rate home loans

Offset accounts are commonly associated with variable rate home loans, but the competitive nature of the home loan market means this feature is available with some fixed rate home loans. These home loans can provide the stability of a fixed interest rate and reduce the amount of interest you pay at the same time. While this repayment method is suitable for borrowers who have just entered the market, such as first home buyers, using this home loan as a hedging strategy may not be as effective. Variable interest rates fluctuate according to economic conditions and unless you’re an economic expert, predicting when interest rates fall or rise is no easy task. Either way you’ll still have the benefit of the offset account to reduce your principal.

Is an offset account the best option for you?

Offset accounts are considered to be deposit products. Therefore, they are considered investment accounts. In order to determine whether an offset account is better for you or not, you should not take any information provided within this article as financial advice. Rather, you should discuss your situation with a licensed financial advisor and work out whether an offset account might be right for your own personal financial situation or not.

Was this content helpful to you? No  Yes

Related Posts

HSBC Home Value Loan - Resident Owner Occupier only

Enjoy the low variable rate with $0 ongoing fee and borrow up to 90% LVR.

NAB Choice Package Home Loan - 2 Year Fixed (Owner Occupier)

A fixed rate package loan with flexible repayments options. NAB Rewards Points offer available, terms and conditions apply.

IMB Budget Home Loan - LVR <=90% (Owner Occupier)

A competitive budget rate without any unwanted bells and whistles.

Greater Bank Ultimate Home Loan - Discounted 1 Year Fixed LVR ≤85% ($150K+ Owner Occupier)

Discount off an already competitive interest rate for loans over $150k. NSW, QLD and ACT residents only.

Ask a Question

You are about to post a question on

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Disclaimer: At we provide factual information and general advice. Before you make any decision about a product read the Product Disclosure Statement and consider your own circumstances to decide whether it is appropriate for you.
Rates and fees mentioned in comments are correct at the time of publication.
By submitting this question you agree to the privacy policy, receive follow up emails related to and to create a user account where further replies to your questions will be sent.

14 Responses to How an offset account can save you thousands

  1. Default Gravatar
    Jane | April 29, 2017


    I would like to know how to utilise equity in my home. Also if an offset loan is the best option?

    • Staff
      Anndy | April 30, 2017

      Hi Jane,

      Thanks for your question.

      If you have a line of credit home loan, it acts as a flexible transactional mortgage that lets you access your home equity when you need them. You can use the funds for a renovation, to purchase a property or car, or even to cover your ‘big’ retirement plans.

      We can’t say if an offset home loan is the best option for you or not as it depends entirely on your personal situation. A home loan with offset account means that your mortgage is attached to a regular transaction account. Every dollar you keep in the offset account actively reduces, or ‘offsets’ the amount of interest you pay on your mortgage. However, do note that offset accounts are usually offered on full featured home loans and some of these loans can have higher interest rates or fees attached to them than a basic home loan. Also, the offset account itself may have an account-keeping fee attached to it. Out guide above can help you decide if this type of home loan is right for you.


  2. Default Gravatar
    Cormac | April 8, 2017

    Can I get a fixed rate interest only mortgage with an offset account and also if I go fixed and variable can the offset be used for both the fixed and variable? I have recently been advised that the offset account can only be attached to the variable percentage.

    • Staff
      Anndy | April 16, 2017

      Hi Cormac,

      Thanks for your question.

      On our comparison table above, you can compare home loans with offset account feature. Your options include fixed and variable home loan products.

      ANZ Fixed Rate Home Loan – 2 Year Fixed (Owner Occupier) is a fixed home loan with interest-only option.

      If you need help in looking for the best option, you may also get in touch with a mortgage broker who can assist you.


  3. Default Gravatar
    John | March 7, 2016

    We are currently on a 2yr fixed mortgage and are only able to get a parital offset account with our bank (minus 1.5% off total). Would a sum of say $20k be more benficial in a savings account earning minimal interest or in a partial offset account? Is there a formula for simple folk like me to work this out? Thanks, John

  4. Default Gravatar
    Nicole | August 29, 2015

    Can I have more than one offset account working on a home loan and does the account pay interest. Also are there fees on this account?
    Thanks: Nicole

    • Staff
      Marc | August 31, 2015

      Hi Nicole,
      thanks for the question.

      Generally, a home loan will come with only one offset account, and it does not pay interest. Rather, it saves you interest on your home loan, and as the interest rates for home loans are almost always higher than that of savings account, this can give a larger benefit. Offset accounts can come with monthly fees, so it’s wise to take a look at the fine print for any accounts and home loans you’re interested in.

      I hope this helps,

  5. Default Gravatar
    Graeme | June 19, 2015

    We currently have $100k in an offset account against a mortgage of $245k on an owner occupied property. We have no investment property.
    The intention is to sell this property in the next 1 to 2 years and downsize into a fully owned (and occupied) property.
    The question is – should we leave the $100k in the offset or use it to reduce the $245k mortgage?

    • Staff
      Belinda | June 22, 2015

      Hi Graeme,

      Thanks for your enquiry.

      Please note that is an online comparison service and we’re not in a position to offer you specific financial advice.

      However, on this page you can fill out the form to speak with a mortgage broker and discuss your options.


  6. Default Gravatar
    Rob | January 25, 2015

    What guarantee is there that if you start with a 100% fixed offset account, which my daughter has, that it will:
    1. Be honoured over the course of the (In her case)3 years but more importantly;
    2. Over the 30 years of the loan?

    In other words if loan conditions change with a banking product in the future will it be retrospectively applied?

    • Staff
      Marc | January 27, 2015

      Hi Rob,
      thanks for the question.

      As each lender has their own policy, the treatment of an offset account in relation to product changes will be dealt with according to their unique policy. I would recommend contacting your daughter’s lender to find out how the offset account would be dealt with in the event of a substantial product change. Many lenders will honour product features for existing customers in the event product changes occur, but as mentioned you’ll want to contact your lender first.

      If you’re concerned about the safety of the account, as 100% offset accounts are covered by the government guarantee on savings amounts of up to $250,000 per person per institution, these accounts can be thought of as safe as a regular savings account.

      I hope this helps,

    • Default Gravatar
      David | February 21, 2015

      Hello Marc,
      I am 4yrs. into a 5year “variable interest only offset loan” that is to roll over to P&I after 5yrs., the question is, am I able to opt. for another 5year interest only period with out being reassessed. Will they just roll it over.

      As an offset loan (int.only),I have paid off approx. 30% Of the original loan value. If I am able to pull another 5yrs. Int. only I will end up owing 15-25% of the original loan balance.

      I will then go to P&I. and the result will be $Huge – $0 in 13 – 15yrs.


    • Staff
      Shirley | February 23, 2015

      Hi David,

      Thanks for your question.

      It depends on the terms and conditions of the loan you’ve entered to. In most cases, lenders provide interest-only repayments for a period of up 10 years.

      Please speak to your lender directly to see if they can extend your interest-only term.


Ask a question