What is an offset account?
Offset account: An offset account is an everyday transaction account linked to your home loan. Every dollar in it is subtracted from your loan balance when daily interest is calculated — so $50,000 in offset against a $500,000 loan means you pay interest on only $450,000, while the money stays fully accessible.
Part of the Everstone mortgage glossary · Reviewed June 2026
How an offset account works
Interest on a home loan is calculated daily on the outstanding balance. A 100% offset account reduces that balance, dollar for dollar, by whatever is sitting in the linked account that day. At an interest rate around 5.5%, an average offset balance of $20,000 saves roughly $1,100 a year in interest — and because that interest would have been paid with after-tax money, the effective return beats most savings accounts.
The classic strategy is to run your whole financial life through it: salary lands in the offset, bills are paid from it, and every dollar offsets the loan for every day it sits there. Pairing it with a credit card paid in full each month keeps your cash in offset for longer.
A tax refund is one of the easiest deposits to make into an offset. See what to do with your tax refund on your home loan for where a one-off lump sum works hardest.
Offset vs redraw — the difference that matters
A redraw facility looks similar (extra repayments you can take back) but the money has legally gone into the loan, and taking it out again is at the lender's discretion. An offset is your own bank account. For investors there's a serious tax distinction: pulling cash from redraw on an investment property can contaminate the loan's deductibility, while spending from an offset doesn't change the loan at all. Anyone who might convert their home into a rental later should care about this before choosing where to park spare cash.
Is the package fee worth it? Offset loans usually come inside a package costing roughly $300–400 a year. As a rule of thumb, an average offset balance above about $7,000–10,000 at current rates covers the fee — below that, a no-fee loan with redraw may be the better deal.
Common questions about offset accounts
Offset or redraw — which should I use?
If there's any chance the property becomes an investment, or you value certain access to your cash, offset. If your balance is small and you'd rather avoid package fees, redraw can be the more economical choice.
Do fixed-rate loans have offset accounts?
Often not, or only partial offset. A common structure is splitting the loan — fixing part for certainty and keeping a variable portion with full offset.
Is money in an offset account safe?
It's an ordinary deposit account with your lender, covered by the government's Financial Claims Scheme up to $250,000 per person per institution.
Related terms: Comparison rates · LVR · Full glossary
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