What Is an Offset Account — and How It Can Save You Thousands!

When you get a home loan, one of the most powerful tools you can use to save interest is an offset account. But many borrowers still aren’t sure how it actually works. Let’s break it down simply.

What is an Offset Account?

An offset account looks just like an everyday transaction account — you can have your salary paid into it, pay bills, or transfer money — but it’s linked to your home loan.

The balance in that account “offsets” your loan balance when interest is calculated. You only pay interest on the difference between your loan balance and the money sitting in your offset.

Example: If your home loan is $600,000 and you have $20,000 in your offset account, you’ll only be charged interest on $580,000.That can save you thousands in interest over the life of your loan.

Why It’s So Powerful

Because mortgage interest compounds daily, even keeping extra funds in your offset for part of the month reduces interest.

For example, if you keep your salary in your offset until bills are due, you’re saving interest every day those funds sit there.

Tip: Think of your offset as a “parking spot” for your savings — every dollar works to reduce your interest.

Offset vs Redraw — What’s the Difference?

Both offset and redraw help you reduce interest, but they work differently:

Feature	Offset Account	Redraw Facility
Access	Full, like a bank account	May take 1–2 days to access
Tax treatment	Savings aren’t considered interest income	Redraws are just your own extra repayments
Flexibility	Higher	Slightly limited depending on lender

If you like easy access and visibility of your money — offset is usually better.

Who Should Use an Offset Account?

An offset account is especially useful if you:

• Keep a healthy cash balance (e.g., salary, savings, business income)

• Want flexibility to use funds anytime

• May convert your home to an investment property later (offset keeps the tax structure cleaner than redraw)

  
  

The Bottom Line

An offset account doesn’t reduce your loan balance — but it reduces the interest you pay, which helps you pay off your loan faster.

It’s one of the simplest ways to get your money working smarter — not harder.

If you’re unsure whether your loan has an offset or if you’re getting full benefit from it, reach out for a quick review. A 10-minute chat could uncover ways to save hundreds (or even thousands) a year.

Mortgage Broker | 0424513740 Helping Australians make smarter lending decisions