How does an offset account save you money?
An offset account is a transaction account linked to your home loan. Your lender calculates interest only on the difference between your loan balance and the total balance sitting in your offset account. If you owe $650,000 and have $50,000 in offset, you're charged interest on $600,000 — every single day.
Why multiple offset accounts?
Many Australian lenders — including Commonwealth Bank, ANZ, NAB, Macquarie, and Athena — allow multiple offset accounts against a single loan. This lets you bucket your money (bills, emergency fund, holiday savings) without losing the interest benefit. Every dollar in any linked account reduces your interest charge.
Partial vs full offset
This calculator assumes a full offset account, where 100% of your balance offsets the loan. Some older or lower-rate products offer partial offset (e.g. 40%) — in that case your savings will be proportionally lower. Always check your loan product disclosure statement.
The offset account vs redraw comparison
Redraw facilities work differently — extra repayments sit inside the loan and reduce your balance directly, but accessing those funds is at the lender's discretion and may have tax implications for investment loans. Offset keeps money separate, accessible, and with no tax risk on investment properties.
The redraw contamination trap for future investors
If you ever convert your owner-occupied home to an investment property, the tax deductibility of your loan interest depends on the loan's purpose at the time the funds were drawn. An offset account preserves this perfectly — your loan balance stays unchanged, and when the property becomes an investment, the full loan interest is deductible. Redraw is different: if you have made extra repayments and then redrawn those funds for personal use (renovations, holidays, a car), that redrawn portion is no longer connected to the property purchase. When the property later becomes an investment, only the original purpose borrowing remains deductible — the redrawn amount is contaminated. This is one of the most common and costly tax mistakes in Australian property investment. If there is any chance your home will ever become a rental property, use an offset account rather than making extra repayments into redraw.
Does my offset account balance need to stay constant?
No — and in fact the natural movement of your salary in and expenses out is what makes offset accounts so effective. Interest is calculated daily on the loan balance minus the offset balance at that day's close. The day your salary hits the offset account, your interest charge drops immediately. As you spend over the month, the average offset balance determines your monthly interest saving. The optimal strategy is to have your salary credited directly to the offset and pay all expenses from it — maximising the average daily balance. Even parking your emergency fund in the offset rather than a separate savings account adds to the interest-saving average with zero opportunity cost, since your emergency fund is accessible on demand.
Is the offset account benefit better than a savings account?
Almost always yes, and the maths is unambiguous. Savings account interest is assessable income taxed at your marginal rate. Offset interest savings are not income — they are a reduction in a non-deductible cost. If your home loan rate is 6.2% and your marginal tax rate (including Medicare levy) is 34.5%, you would need a savings account paying 6.2% ÷ (1 − 0.345) = 9.46% gross to match the after-tax value of the offset. No term deposit or savings account in Australia currently offers rates anywhere near this. The only exception is if your marginal rate is very low (under 19%) — in which case the tax on savings interest is modest and the offset advantage narrows. For most PAYG workers above $45,000 income, offset dominates.
Does this work for investment properties?
Yes — and for investment properties, offset is strongly preferable to redraw for tax reasons. The loan balance (and therefore the deductible interest) stays unchanged when funds sit in offset. If instead you made extra repayments into the investment loan and later redrawn them for personal use, the ATO may deny the deductibility of the interest on the redrawn portion — because the purpose of those funds changed from investment to personal. The offset keeps your investment loan balance intact, preserving the full interest deduction, while your offset savings earn the effective offset return tax-free (since they reduce non-deductible personal expenses or, for pure investment loans, simply sit as accessible cash). This is a point worth discussing with your accountant when structuring an investment property loan.
Does an offset account cost extra?
Most lenders charge a slightly higher interest rate for loans with offset account features — typically 0.10–0.30% above an equivalent no-frills variable rate. The question is whether your expected offset balance justifies this rate premium. As a rough rule: if you consistently maintain $20,000 in offset on a $600,000 loan, the offset saves approximately $1,240/year in interest. If the offset feature costs 0.20% extra ($1,200/year on $600,000), you are barely breaking even. With $50,000 in offset, the saving is $3,100/year — well ahead of the premium. Compare the total rate including offset feature against no-offset alternatives, and estimate your realistic average offset balance to determine if the feature is worth the premium.
Can I have multiple offset accounts?
Many lenders allow multiple offset accounts against a single home loan — Commonwealth Bank, ANZ, NAB, Macquarie, and several others all support this. Multiple offsets let you maintain separate savings buckets (emergency fund, holiday savings, annual expenses, investment cash) without losing the interest-saving benefit. Every dollar in any linked offset account reduces your loan interest, regardless of which bucket it is in. This eliminates the need to consolidate savings into a single account for maximum offset benefit. Check your lender's specific product terms — some charge per offset account, while others include multiple offsets at no additional cost.
Should I put my emergency fund in my offset account?
Yes — this is one of the most commonly overlooked optimisations for homeowners. An emergency fund sitting in a savings account earns taxable interest at rates typically below your mortgage rate. The same amount in an offset account saves interest at the full mortgage rate — tax-free. The funds are just as accessible (offset accounts are transaction accounts with instant access). The only consideration is that offset accounts are not separately insured up to the $250,000 government guarantee limit — the guarantee applies to deposits at each ADI, and an offset account balance is a deposit for this purpose. For most households with emergency funds of $20,000–$50,000, this is not a practical concern, but worth noting for those with very large offset balances.