Top Tips to Use an Offset Account and Cut Interest

An offset account lets your savings reduce the interest on your loan while the cash stays available to you. For professionals building wealth through property, that makes it one of the most useful features to get right on a home loan.

The decision in front of you is whether an offset is worth its cost and how to set it up so it works hard. The answer depends on how much cash you hold, how often you touch it, and what you plan to buy next.

What Is an Offset Account and How Does It Work?

An offset account is a transaction account linked to your home loan. The balance in it is subtracted from your loan balance when the lender calculates interest, so you pay interest only on the difference.

Your money is not locked away. You can still use it for bills, a deposit on your next purchase or a tax payment. The loan balance itself stays the same, and only the interest charged goes down. Most lenders calculate interest daily, so your salary sitting in the account for even a few weeks helps.

Offset Account Example: $60,000 Against a $600,000 Loan

A $60,000 offset balance on a $600,000 loan means you pay interest on $540,000. At an illustrative rate of 6.75% p.a., that cuts annual interest from about $40,500 to about $36,450, a difference of roughly $4,050 a year.

Consider a professional with a $600,000 owner occupied home loan who keeps $60,000 in savings in an everyday account. That money earns little after tax, while the loan charges 6.75% (illustrative only, your rate will depend on your lender and deposit size). Moving the savings into a linked offset gives them the $4,050 yearly reduction without locking up a cent.

The lender charges a package fee of $395 a year in this scenario (also illustrative). The net gain is about $3,655 a year, and the repayment amount can stay the same, so the loan is paid off faster. If the balance dropped to $10,000, the interest reduction would be about $675 and the fee would take a much bigger bite. Use a repayment calculator with your own figures before you decide.

Offset Account vs Redraw: Which Suits Your Goals?

An offset keeps your savings in a separate account, while redraw lets you withdraw extra repayments you have already put into the loan. Both reduce interest, but they differ in access and flexibility.

With redraw, access rules vary by lender, and some limit how you can withdraw. With an offset, your money sits in a normal account with a card and online banking. If you plan to hold cash for a future deposit, an offset is usually the cleaner way to do it. If you will never hold more than a small balance, redraw on a lower cost loan may suit you better.

Offset Account Fees and Trade-Offs to Weigh Up

The main cost of an offset account is the higher fee or interest rate that often comes with the loan. If your offset balance is small, those costs can outweigh the interest you save.

Some lenders include a linked offset in a package with an annual fee. Others offer a lower rate on a basic loan without an offset. Compare the total yearly cost of each option against the balance you will realistically keep in the account. A broker can line up several lenders so you see the full picture, and our home loans team does this every day.

There is also a behaviour trade-off. Money in an offset is easy to spend, so the interest benefit only works if the balance stays high. Some people keep a separate account for spending to protect it.

Does an Offset Account Work With Fixed or Split Rate Loans?

Availability depends on the lender. Many offer a full offset on a variable rate loan, while offset options on a fixed rate loan are often limited or unavailable.

This is where a split loan can help. You can fix one portion for repayment certainty and keep the other portion variable with a linked offset. The trade-off is that the fixed part may carry break costs if you exit early, and the offset only reduces interest on the variable part. If your fixed term is ending soon, look at your fixed rate expiry options before choosing where your savings should sit.

Using an Offset Account in a Property Investing Strategy

An offset can let you hold cash for your next purchase while still reducing interest on your current loan. That is useful when you are building equity and plan to buy again.

If you later keep your home and buy an investment property, the cash in your offset can still be used towards the deposit and costs, and the amount you can borrow will be assessed by the lender. Check your borrowing capacity early so you know what is realistic. How an offset interacts with tax deductions on an investment loan depends on your situation, so speak to your accountant before choosing a structure. When you are ready, our investment loans page explains how we approach this.

Is Your Current Loan Missing an Offset?

If your current loan has no offset and you hold meaningful savings, a review can show whether switching is worth it. Refinancing can bring a new rate and an offset, but it may involve discharge and application costs, so the numbers need to stack up.

A loan health check compares your current loan with other lenders and shows whether an offset would pay for itself. If it does, refinancing is the next step.

Call one of our team or book an appointment at a time that works for you, and we will work out which offset set-up suits your savings and your next property move.

Frequently Asked Questions