Imagine a tool that can significantly reduce your mortgage interest, keep your savings accessible, and give you greater financial flexibility. Sounds too good to be true? Enter the offset account – one of the most powerful (and underrated) financial tools for home loan borrowers.
In fact, they’re becoming more popular than ever. NAB recently revealed that 70% of its home loans now include an offset feature, up from just 50% in 2022. Responding to demand, NAB has joined Westpac, CBA, and Macquarie in offering up to 10 offset accounts on one loan. Though it’s still catching up to Bank of Melbourne (which offers up to 99!) and Bank Australia (which offers unlimited accounts).
So, what makes offset accounts so effective—and how do you get the most from them?
How Offset Accounts Work
An offset account is a transaction or savings account linked to your home loan. The balance in the account reduces the amount of your loan on which interest is calculated.
For example, if your loan is $400,000 and your offset account has $30,000 in it, you’ll only be charged interest on $370,000. This can save you a significant amount over the life of your loan—all while keeping your money fully accessible.
Tips to Maximise Your Offset Account
1. Stop using separate savings accounts.
Savings accounts typically earn less interest than what you’re paying on your home loan—and the interest earned is taxable. Offset accounts work more efficiently by reducing your interest bill directly, and the benefit isn’t taxed.
2. Get your salary paid directly into your offset.
This simple move helps reduce your interest from the moment funds arrive in your account. The earlier your money hits the offset, the harder it works for you.
3. Set up multiple offset accounts for different goals.
Some lenders let you create multiple offset accounts under one loan. Use them just like you would savings accounts: for bills, holidays, or a home deposit fund—while still getting the full offset benefit.
4. Don’t stress over loan structure.
When used properly, an offset account makes the following less important:
How often you make repayments
The overall loan term
Making extra repayments
When your offset balance matches your loan balance, your loan is effectively paid off.
5. Thinking of borrowing more?
If you’re accessing equity and parking the funds in your offset, those funds can help cover the higher repayments—providing a simple buffer without additional cost.
When an Offset May Not Be Ideal
Offset accounts keep your money accessible, so if you’re likely to dip into savings often, you may not see the full benefit. Redraw facilities (which take more effort to access) may help with discipline.
Most lenders charge about $350 per year for a loan package with offset. To break even, you’d generally need an average balance of about $3,300 in your offset—though this varies based on your loan and tax rate.
Fixed rate loans don’t typically offer offset features. However, a split loan structure—where part of your loan is variable—can give you the best of both worlds: the lower fixed rate and the benefits of an offset.
Looking to Pay Off Your Loan Sooner? Start Here.
Offset accounts are a simple yet powerful way to reduce interest and gain more control over your loan.
Not sure if you’re using your offset account effectively—or if it’s the right fit for your goals?
Let’s have a quick conversation. I’ll show you how to structure your loan to save more and stay on track, with no jargon and full transparency.
