Offset Account Explained: How Much Can You Save on a Home Loan?

An offset account is an everyday bank account linked to your home loan. Its balance is subtracted from your loan balance before interest is worked out, so every dollar in it saves interest at your home loan rate — while staying yours to spend.

Keep $50,000 in offset against a $600,000 loan at 6.45% and you pay interest as if you owed $550,000. That saves about $3,225 in the first year alone and, if you keep making the same repayments, about $231,000 in interest over the life of the loan, finishing it roughly five years early.

Quick action: Use the offset calculator to see the interest and time you'd save with your own balance, rate and loan term.

How an offset account works

Most Australian lenders calculate home loan interest daily and charge it monthly. With an offset, the daily calculation uses:

loan balance − offset balance = balance you're charged interest on

	Without offset	With $50,000 offset
Loan balance	$600,000	$600,000
Offset balance	$0	$50,000
Interest charged on	$600,000	$550,000
Interest in the first year (6.45%)	about $38,700	about $35,475

Your repayment usually stays the same. Because less of it goes to interest, more goes to paying down the loan, so the balance falls faster each month and the savings compound over time.

How much can an offset save?

$600,000 loan, 6.45% variable, 30 years, principal and interest, repayments unchanged at $3,773 a month, offset balance held constant:

Offset balance	Interest saved over the loan	Time saved
$10,000	about $55,900	1 year 2 months
$25,000	about $129,400	2 years 10 months
$50,000	about $231,000	5 years 1 month
$100,000	about $381,200	8 years 5 months

Calculated with the same amortisation method as our offset calculator. Your result depends on your rate, how long the money stays in offset, and whether your balance grows or shrinks over time.

Even a modest balance matters: $10,000 left in offset for the life of the loan saves more than five times its own value in interest.

Offset vs extra repayments vs redraw

Money in an offset and the same amount paid into the loan as an extra repayment save the same interest. The difference is what happens to the money:

	Offset account	Extra repayments / redraw
Interest saving	Same, dollar for dollar	Same, dollar for dollar
Access to the money	Instant, like a normal account	Redraw may have limits, fees or a delay; some fixed loans allow none
Everyday banking	Yes — pay your salary in and your bills out	No
Usual cost	Often part of a package loan with an annual fee	Usually no extra fee
If you later rent the home out	The debt stays at its full size	Money repaid and then redrawn may be treated as new borrowing for tax purposes

That last row matters if there's a chance you'll keep the property as an investment one day. Keeping savings in offset leaves the loan balance unchanged. Paying it down and later redrawing it for private spending can reduce what you can claim as a tax deduction. Get tax advice before relying on either approach.

If you're comparing the two in detail, see offset vs extra repayments.

Is an offset worth the fee?

Offset accounts often come with a package home loan that charges an annual fee. A quick test is whether the interest you save covers it.

For example, a $395 annual fee at 6.45% is covered once your average offset balance is about $6,100 ($395 ÷ 6.45%). Below that, a no-fee loan with redraw may leave you better off. Above it, the offset usually pays for itself — and the rate on the package loan matters more than the fee.

Offset interest is tax-free (on your own home)

Interest earned in a savings account is taxable income. Interest you avoid paying on your home loan isn't. So for an owner-occupier, a 6.45% offset saving is worth more than a 6.45% savings rate: someone on a 30% marginal tax rate would need a savings account paying over 9% before tax to do better.

100% vs partial offset

Most variable home loans offer a 100% offset: every dollar offsets a dollar of loan. Some loans, especially fixed-rate ones, offer a partial offset (for example 40%) or none at all. With a partial offset, $50,000 in the account only offsets part of the loan, so the savings shrink accordingly. Check the product terms.

Getting the most from an offset

• Have your salary paid straight into the offset.
• Pay bills from a credit card with an interest-free period, then clear it in full from the offset each month, so your cash sits in the offset for longer. Only do this if you always repay the card in full.
• Keep your emergency fund in the offset rather than a separate savings account.
• Use more than one linked offset account if your lender allows it — many offset the combined balance.

Frequently asked questions

What is an offset account?

A transaction or savings account linked to your home loan. Its balance reduces the amount you're charged interest on, but the money remains yours to withdraw.

Does an offset account reduce my repayments?

Usually not. Your minimum repayment stays the same, but more of it pays off the loan, so you finish sooner and pay less interest in total. Some lenders let you recalculate the repayment instead.

How much will my offset save me?

It depends on your balance, rate and loan term. At 6.45% on a $600,000, 30-year loan, $50,000 kept in offset saves about $231,000 in interest. Enter your own numbers in the offset calculator.

Is an offset worth it with a small balance?

If it costs nothing extra, yes — every dollar saves interest. If it comes with an annual fee, your average balance needs to be high enough to cover the fee (about $6,100 for a $395 fee at 6.45%).

Can I have an offset on a fixed-rate loan?

Some lenders offer a partial offset on fixed loans; many offer none. A common approach is to split the loan into a fixed portion and a variable portion with an offset.

Related calculators and guides

• Offset calculator — interest and years saved for any balance
• Home loan repayment calculator — test offset and extra repayments together
• Offset vs extra repayments — which suits your situation
• Extra repayments guide

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Important: General information only, not financial or tax advice. Savings figures are estimates that assume a constant rate and offset balance.