Offset accounts, explained in plain language

An offset account is a transaction account linked to a home loan. Money held in the offset account is subtracted from the loan balance when the lender works out interest. You can still spend that money like a normal account balance, but while it sits in offset, it reduces the interest charged.

A simple example

Suppose a loan balance is $500,000 and the offset account holds $20,000. Interest is then charged on $480,000, not $500,000, for as long as that $20,000 stays in offset. If the offset balance falls to $5,000, interest is charged on $495,000 instead. The saving therefore depends entirely on how much you keep in offset and for how long — it is not a fixed discount.

Offset vs extra repayments

Extra repayments reduce the loan balance directly, and you usually need to redraw the money to use it again, depending on the loan's rules. Money in offset stays accessible as everyday funds, which is why some people keep savings there. Both approaches reduce interest by reducing the balance interest is charged on, but they differ in flexibility, fees, and tax treatment, so the right choice depends on your situation.

What to check before relying on offset

Ask whether the offset is a full offset or a partial offset, whether there is a fee for the account or for the loan package that includes it, and whether the offset applies during a fixed-rate period. This calculator does not model offset accounts, because the result depends on a balance that changes over time. Use the baseline calculator first, then ask your lender for an offset comparison using your expected offset balance.

Estimates only, not financial advice. See the Disclaimer.

Try your own numbers in the home loan calculator — the result is an estimate, not financial advice.