Borrowing Strategy
Offset accounts: the savings quietly working against your loan
The same $50,000 can earn taxed interest in a savings account... or save untaxed interest in an offset. Here is the maths, and the caveats.
A client had $50,000 sitting in a savings account. Earning a little interest... feeling sensible. Meanwhile, her home loan was charging her more than that savings account was paying.
So we moved the $50,000 into her offset account. Nothing else changed. Same money. Same access. And it started working measurably harder.
How an offset account actually works
An offset account is an everyday transaction account linked to your home loan. Every dollar sitting in it is subtracted from your loan balance before the lender calculates that day’s interest. $50,000 in offset against a $500,000 loan means you’re charged interest on $450,000... dollar for dollar, every day it sits there.
It doesn’t change your repayment amount. It changes how much of each repayment goes to interest versus principal... so more of your money clears actual debt.
The maths, on a 6% loan
In a savings account, $50,000 earning 6% produces about $3,000 of interest over a year. But that interest is taxable income. At a 37% marginal rate plus the Medicare levy, you keep roughly $1,830 of it.
In an offset against a 6% loan, that same $50,000 saves you about $3,000 in interest. And none of it is taxed... because you never earned income, you simply stopped paying interest.
Same money. Same 6%. Around $1,170 better off... and usually wider in real life, because savings rates tend to sit below loan rates.
Offset vs redraw vs extra repayments
Extra repayments and redraw facilities also reduce interest... but the money sits inside the loan, and getting it back out is on the lender’s terms. Redraw can be restricted, reduced or frozen. An offset balance is your money in your account, accessible like any other transaction balance.
There’s a structural difference for investors too. Pulling redraw back out of a loan can complicate how interest is treated if the property later becomes an investment... which is a conversation for your accountant before you touch anything. Offset keeps the loan balance and your savings cleanly separate.
When an offset is not the right call
- The fee outweighs the benefit. Offset loans often carry an annual package fee or a slightly higher rate. A small offset balance may not earn its keep... run the numbers on your actual balance.
- Basic loans can be sharper. If you rarely hold cash, a no-frills loan at a lower rate can beat an offset package.
- Partial offsets. Some products only offset a percentage of the balance. A 100% offset is the standard worth asking for.
Whether an offset suits you depends on your loan, your rate, your cash habits and lender criteria. If you’re not sure your current loan is still the right structure, that’s exactly what an ongoing loan review is for... and if the loan itself is stale, refinancing with the right offset structure can do both jobs at once.
Offset account questions
What’s the difference between an offset account and redraw?
An offset is a separate transaction account whose balance reduces the loan balance used to calculate interest... the money stays yours and stays accessible. Redraw is extra money you’ve paid into the loan itself that the lender lets you take back out, on its terms. The interest effect is similar; the access and structural implications are not.
Is an offset account worth it if it has an annual fee?
It depends on your balance. As a rough guide, the interest saved on your average offset balance needs to exceed the fee... on a 6% loan, roughly every $10,000 offset saves around $600 a year, so even modest balances can clear a typical package fee. Run it on your actual numbers, and compare against a lower-rate loan without the fee.
Does money in an offset reduce my repayments?
Not by default. Your repayment stays the same, but less of it goes to interest and more clears principal... so you pay the loan down faster. Some lenders can reduce the repayment instead on request, subject to their criteria.
Can I have an offset on a fixed rate or investment loan?
Some lenders offer offset on fixed loans (often partial), and offsets on investment loans are common... where they can also keep tax treatment cleaner than redraw. Availability and rules vary by lender, so this is a structure conversation before you fix anything.
