How offset accounts work

How it works

Moneysmart explains that an offset account's balance reduces the loan amount you are charged interest on, calculated daily. You can use it like an everyday account: salary in, bills out, a debit card. The interest you do not pay is a saving rather than income. Tax treatment, especially on an investment property, depends on your situation, so ask a tax professional.

A worked example, with RateSonar's own arithmetic:

• Loan: $600,000 at the middle advertised standard variable rate of 6.74% (as at 2 Nov 2026).
• Offset balance: $50,000.
• Interest saved: about $3,370 a year, or roughly $281 a month, while the balance stays there.

The saving scales with the balance and the rate. With a 100% offset, each dollar in the account saves interest at your loan rate.

Offset vs redraw

Moneysmart's summary: with an offset, your savings stay in a separate account you can reach whenever you need them. With a redraw, your extra payments reduce the loan itself and access depends on the lender's rules. Ask the lender how long a redraw takes, whether there is a minimum amount and whether there is a fee.

What it costs

Moneysmart warns that some banks charge for offset features through higher interest rates, account fees or both. Before choosing, compare:

• the interest rate (it may be lower without an offset);
• any annual or package fee;
• any monthly account fee;
• how the loan compares with one that has a redraw instead.

A simple test: take the interest the offset would save and subtract the extra rate cost and fees. Moneysmart suggests an offset may not be worth it if your balance is usually low, for example under $10,000. To see which loans have an offset and what they charge, open a product from home loan rates and use its rate details, then compare lenders in compare rates.

Offset and fixed rates

Moneysmart says offset accounts and redraw are often available on variable loans, and that some fixed loans have fewer features. If you plan to fix, ask whether an offset can link to the fixed part. A split loan may allow an offset on the variable part only. See fixed vs variable.

Mistakes that cost borrowers

• Not linked. Moneysmart notes an ASIC review found some offsets were not linked properly, so interest savings were lost. Check your loan statement shows the offset balance reducing interest, call the bank if it does not, and relink after you refinance or switch loans.
• Paying for an offset you do not use. Review your balance every year.
• Leaving money in a low-interest account elsewhere while you owe interest on a loan at a higher rate.
• Forgetting the offset on a refinance. See the refinancing checklist.