See how much interest and time you save by keeping money in a 100% offset account. Enter your loan details and average offset balance to see your estimated savings.
Offset Account Savings Calculator
How a Mortgage Offset Account Works
A 100% offset account is a transaction or savings account linked directly to your home loan. Every dollar in the offset account reduces the loan balance on which interest is calculated — dollar for dollar.
Example: If your loan balance is $550,000 and you have $30,000 in your offset account, you only pay interest on $520,000 — not $550,000. At 6.00% p.a., that $30,000 in offset saves you approximately $1,800 per year in interest (tax-free).
The key distinction: your repayment amount stays the same, but more of each payment goes to reducing principal instead of covering interest. This pays your loan off faster.
Offset vs Savings Account — Which Is Better?
The offset account is nearly always better than a savings account for mortgage holders. Here’s why:
| Feature | Offset account | Savings account |
|---|---|---|
| Effective return | = Home loan interest rate | = Savings rate (typically lower) |
| Tax treatment | Tax-free (reduces interest, not income) | Interest is taxable income |
| Access to funds | Instant (transaction account) | May require notice |
| APRA protection | Protected up to $250,000 per ADI | Protected up to $250,000 per ADI |
At a 6.00% mortgage rate, your offset account effectively earns 6.00% per year — tax-free. A savings account earning 5.00% gross would net approximately 3.25–3.75% after tax at a 35–45% marginal rate.
The offset is particularly powerful for high-income earners who pay tax at 45% — the after-tax equivalent rate of a 6.00% offset return is approximately 10.9% for someone on the top marginal rate.
The Right Way to Use an Offset Account
Salary Crediting
Credit your salary directly to the offset account. Every day your salary sits in the offset, it’s reducing your loan interest. Most people spend money throughout the month, so the average balance is lower than your full pay — but the effect is still meaningful.
Example: If you earn $8,000/month net, credit it to offset on payday. If your average month-end balance is $4,000 after spending, that $4,000 average earns a 6% tax-free return for the full month.
Keep an Emergency Fund in Offset
Rather than keeping your emergency fund in a separate savings account earning taxable interest, keep it in your offset account. It earns a better effective return and is still fully accessible.
Multiple Offset Accounts
Many lenders allow multiple offset accounts linked to the same mortgage. Some people use separate offset accounts for different savings goals (holidays, car replacement, emergency fund). All balances reduce the same loan balance.
How Much Can You Save? — Offset Balance Impact Table
The following estimates show interest saved and time reduced for a $550,000 loan at 6.00% over 30 years, for different average offset balances.
| Average offset balance | Annual interest saving | Total interest saved | Loan paid off sooner |
|---|---|---|---|
| $10,000 | ~$600 | ~$17,000 | ~0.9 years |
| $25,000 | ~$1,500 | ~$40,000 | ~2 years |
| $50,000 | ~$3,000 | ~$73,000 | ~3.8 years |
| $100,000 | ~$6,000 | ~$125,000 | ~6.8 years |
| $150,000 | ~$9,000 | ~$163,000 | ~9.5 years |
Estimates only. Assumes constant balance and constant rate.
Partial Offset vs 100% Offset
A 100% offset account reduces your interest dollar-for-dollar — $1 in offset = $1 reduction in the loan balance on which interest is calculated.
A partial offset account only applies a portion of your balance. For example, a 40% partial offset would apply $40,000 of savings against a $100,000 balance — saving interest on only $40,000. Partial offset accounts are uncommon in the modern Australian market; most variable rate loans with offset accounts offer 100% offset.
Offset Accounts and Investment Properties
For investors, the tax treatment of offset accounts is particularly important. If you have:
- An owner-occupier loan — whether you use offset or make extra repayments, the result is the same from a tax perspective (interest is non-deductible either way).
- An investment property loan — using an offset account (rather than making extra repayments) preserves the maximum deductible interest. Making extra repayments permanently reduces the loan balance and permanently reduces the deductible interest. With an offset, you can always withdraw the money and restore the deductible interest — which is why accountants typically recommend offset over extra repayments for investors.
This is a significant tax distinction. Speak with your accountant before structuring your investment loan repayments.
FAQ — Offset Accounts Australia
Does an offset account reduce my minimum repayment?
No — the minimum repayment stays the same. What changes is how much of each repayment goes to interest vs principal. Because interest is lower, more of your fixed repayment reduces principal — paying the loan off faster.
What’s the difference between offset and redraw?
A redraw facility allows you to withdraw extra repayments you’ve already made. Funds in redraw have already reduced your loan balance and may not be as easily accessible as an offset account. An offset is a linked account that sits separately — interest is calculated on the net position. For investors, these are treated differently by the ATO. See our offset vs redraw guide.
Are offset accounts available on fixed rate loans?
Most fixed rate loans do not offer a 100% offset account. A limited number of lenders offer an offset on fixed rate products, but these are uncommon. If having an offset account is important, this is a strong reason to choose a variable rate or split loan.
Is the money in my offset account protected?
Yes — money in a mortgage offset account held at an Australian ADI (authorised deposit-taking institution) is protected by the government’s Financial Claims Scheme up to $250,000 per account holder per ADI.
Estimates are indicative only. Results assume a constant offset balance and constant interest rate. Actual savings depend on your offset balance activity and rate changes over time. For advice tailored to your situation, speak with a licensed mortgage broker or financial adviser. Find one through MoneySmart.