Offset Accounts: The Feature That Could Save You Tens of Thousands
How 100% offset accounts work in Australia, the maths behind the savings, partial vs full offset, fixed vs variable, and the break-even balance you actually need.
Offset Accounts: The Feature That Could Save You Tens of Thousands (If You Actually Use It Right)
An offset account is a transaction account linked to your home loan where every dollar you hold reduces the loan balance on which interest is calculated — not the loan balance itself. On a $700,000 loan at 5.72% over 30 years, keeping $50,000 in offset cuts your total interest bill by around $190,000 and wipes nearly four years off your loan term. The catch: most borrowers either misunderstand how offset accounts work, pick the wrong product, or pay fees that outweigh the benefit.
What Is an Offset Account? (The Simple Version)
Your home loan charges interest on the outstanding balance every day. An offset account sits beside that loan and reduces the balance the lender uses for that daily calculation.
Here's the mechanic in plain numbers:
- Loan balance: $600,000
- Offset account balance: $50,000
- Interest is charged on: $550,000
You still owe $600,000. The offset doesn't pay down principal. But every day your $50,000 sits there, you avoid interest on $50,000. At 5.72%, that's $2,860 a year you don't pay — without touching your loan.
Your minimum repayment stays the same as if no offset existed. Because more of each repayment goes toward principal (and less toward interest), you pay the loan off faster automatically. No extra effort required.
One more thing worth naming upfront: unlike a savings account, offset account balances earn no interest. That's the design — the "return" is the interest you avoid paying on your loan. For most borrowers, that return beats a savings account rate after tax, because loan interest savings aren't taxable.
100% Offset vs Partial Offset — Why One Rarely Stacks Up
A 100% offset account applies every dollar of your balance against the full loan balance, dollar for dollar. This is the standard product most major lenders offer.
A partial offset account only applies a percentage — say 40% or 50% of your balance — against the loan. So $50,000 in a partial offset might only reduce your interest-bearing balance by $25,000.
Partial offset accounts were common a decade ago. They still exist at some smaller lenders and credit unions. Avoid them unless the rate is materially lower than 100% offset alternatives — the maths almost never works in your favour. Check the product disclosure statement: if it says "partial offset" anywhere, run the numbers or walk away.
Lenders offering 100% offset on variable loans include the major banks (ANZ, CBA, NAB, Westpac), plus Macquarie, ING, Suncorp, Bank of Queensland, and most online lenders. Availability on fixed rates is restricted — more on that below.
How Much Can an Offset Account Actually Save You?
Here's the impact of different offset balances on a $700,000 loan at 5.72% over 30 years. The repayment ($4,072/month) stays constant throughout — the offset simply redirects more of each payment to principal.
| Offset Balance | Total Interest Paid | Interest Saved | Years Saved |
|---|---|---|---|
| $0 (no offset) | $765,805 | — | — |
| $20,000 | $681,385 | $84,419 | 1.7 years |
| $50,000 | $575,331 | $190,474 | 3.8 years |
| $100,000 | $437,796 | $328,009 | 6.7 years |
Assumes offset balance remains constant over loan term. Rate: 5.72% (RBA average new owner-occupier variable rate, February 2026).
The relationship is non-linear because compound interest works both ways. A $50,000 offset doesn't just save $50K worth of interest — it saves interest on interest that would have accumulated over 30 years.
The monthly saving in plain numbers:
- $20,000 offset → $95/month in interest avoided
- $50,000 offset → $238/month in interest avoided
- $100,000 offset → $477/month in interest avoided
If you're parking a $50,000 emergency fund in a savings account earning 4.5%, you're netting roughly 3.2% after tax (at 30% marginal rate). Your loan is costing you 5.72%. Move that emergency fund into an offset account and you're effectively earning the 5.72% — tax free.
Offset Account vs Redraw Facility — Which Should You Choose?
Most lenders offer both. They feel similar but behave very differently.
| Feature | Offset Account | Redraw Facility |
|---|---|---|
| Structure | Separate transaction account | Extra repayments sitting inside loan |
| Access to funds | Instant, like a bank account | Subject to lender approval; may take 1–5 business days |
| Lender can restrict access? | No — it's your money | Yes — lenders can reduce or remove redraw at any time |
| Tax risk for investors | None | Significant (see below) |
| Fees | Usually requires package fee | Often free on basic loans |
| Behavioural friction | Low — easy to spend | Higher — funds feel "in" the loan |
For owner-occupiers who can maintain a consistent balance: both work, but offset gives you more flexibility and better protection if you ever convert the property to investment use.
For investors: offset accounts are strongly preferred. Redraw facilities carry a tax trap that can cost you thousands — explained in the next section.
For basic borrowers who want the lowest rate and minimal fees, and who don't plan to hold large liquid savings: a simple loan with redraw is fine. The rate premium for offset-capable loans is typically 0.10–0.30% higher than no-frills variable rates.
Offset Accounts and Tax — The Investor Angle Most Guides Skip
If you own an investment property, this section could save — or cost — you tens of thousands in tax deductions. Read it carefully.
The core rule: the ATO determines interest deductibility based on the purpose of the funds drawn, not the purpose of the loan account. If you borrow money for investment purposes, that interest is deductible. If you mix in personal borrowing, you contaminate the deductibility.
Here's where redraw creates a tax trap:
- You have an investment property loan with $600,000 outstanding.
- You make $50,000 in extra repayments via redraw.
- You later redraw $50,000 to pay for a personal holiday or home renovation.
- The ATO now considers $50,000 of your investment loan to have been used for personal purposes.
- The interest on that $50,000 — approximately $2,860/year — is no longer tax deductible.
This is called mixed-purpose contamination. The ATO's guidance (refer to Tax Ruling TR 2000/2) is clear: the deductibility follows the use of the funds, not the structure of the loan.
An offset account avoids this entirely because offset funds never enter the loan. They sit in a separate account. If you withdraw from your offset for personal use, you haven't changed the investment loan's purpose — it was always fully drawn for investment purposes.
The practical rule for investors: never use a redraw facility on an investment loan if you have any personal spending from that account. Use an offset account and keep personal and investment funds completely separate.
Does an Offset Account Suit You? (Decision Framework)
Not every borrower benefits from an offset account. Here's the honest breakdown.
Offset makes sense if:
- You regularly maintain at least $7,000–$10,000 in the account (enough to beat the annual package fee)
- You have a variable rate loan (offset isn't available on most fixed-rate products)
- You use the account as your primary everyday transaction account, so your salary parks there before bills go out
- You're an investor who wants to protect tax deductibility
Offset is overkill if:
- Your balance will consistently be under $5,000 — you'll pay more in fees than you save
- You're on a fixed rate and your lender doesn't offer offset
- You're a basic borrower who just wants the lowest rate — that basic loan might be 0.20% cheaper, saving more than an offset would add
The break-even calculation is simple. At 5.72%, you need approximately:
- $6,906 in offset to offset a $395/year package fee
- $9,615 in offset to offset a $550/year package fee
- $13,112 in offset to offset a $750/year package fee
If your average offset balance will comfortably exceed these thresholds, offset wins. If you'll be hovering near zero most of the month, save the fee and take the basic rate.
The smartest move for most salaried borrowers: set up direct salary credit into the offset account and pay all bills from it. Your full salary reduces the loan balance for the weeks between pay and expenses — that compounding effect adds up significantly over 30 years.
What to Watch Out For
Lenders don't advertise the limitations prominently. Here are the traps:
Annual package fees ($395–$750/year) Offset accounts almost always come bundled in a professional or premier package. ANZ, CBA, NAB and Westpac charge between $395 and $750/year for these packages. That fee needs to be cleared by your offset savings before you're ahead.
Offset not available on fixed-rate loans (mostly) Most lenders don't offer offset on fixed-rate home loans at all. CommBank — as a named example — caps offset at $20,000 on its fixed-rate products. That's better than nothing, but $20,000 at 5.72% only saves $1,144/year in interest, barely justifying a $395 package fee.
Rate premium of 0.10–0.30% Offset-capable loans carry a rate premium over basic variable loans. Macquarie's Offset Home Loan Variable is priced at 5.84% (6.09% comparison rate) as an example. Compare that to basic variable loans from the same lender to quantify the true cost of the offset feature before you sign.
Not all offset accounts are truly "fee-free" Some lenders advertise "no account-keeping fee" on the offset account itself, but roll costs into a higher loan rate instead. Compare the total cost — rate plus fees — not individual line items.
Offset doesn't work on split loans without a split structure If you split your loan (part fixed, part variable), your offset will typically only apply to the variable portion. Model this carefully if you're fixing to get rate certainty — you may be reducing offset exposure significantly.
Best Home Loans with Offset Accounts
Rates shift weekly. The most useful thing we can tell you isn't a static list — it's that our panel includes 100+ home loan lenders, and the best offset loan for you depends on your LVR, loan size, and whether you're owner-occupier or investor.
Use the LoanGorilla comparison table to filter by offset availability, compare rates including package fees, and see comparison rates (which include most fees) side by side.
Compare home loans with offset accounts on LoanGorilla — 100+ lenders on panel. Compare now at loangorilla.com.au/home-loans
Frequently Asked Questions
How does an offset account reduce my home loan interest?
Interest on your home loan is calculated daily on the outstanding balance. An offset account balance is subtracted from your loan balance before that calculation runs. So on a $600,000 loan with $50,000 in offset, interest is charged on $550,000 each day — saving you $2,860/year in interest at 5.72%.
What's the difference between a 100% offset and a partial offset?
A 100% offset reduces your interest-bearing balance dollar for dollar — $50,000 in offset cuts the balance by $50,000. A partial offset only applies a fraction, so $50,000 might only offset $25,000 of your balance. Partial offset accounts almost never justify their fees compared to 100% offset alternatives.
Can I have an offset account with a fixed-rate loan?
Rarely, and usually with caps. Most lenders don't offer offset on fixed-rate products. CommBank caps offset at $20,000 on fixed loans. If rate certainty matters to you, consider a split loan: fix part of it for predictability and keep a variable portion with full offset to capture the benefit.
Is an offset account worth the annual fee?
At 5.72%, you need around $7,000–$14,000 sitting in the account consistently to justify a $395–$750/year package fee. If you keep more than $15,000 in the offset on average, you're ahead — often significantly. If your balance regularly drops near zero, a basic loan with redraw and no annual fee is probably cheaper.
What's the difference between an offset account and a redraw facility?
An offset account is a separate bank account; a redraw is extra repayments sitting inside your loan. Offset funds are instantly accessible like a debit account. Redraw is subject to lender approval and can be restricted at any time. For investors, offset avoids the tax deductibility contamination risk that redraw creates.
Can I use an offset account on an investment property?
Yes — and it's the preferred structure. Interest on investment loans is tax deductible. Using an offset preserves that deductibility because your offset funds never enter the loan itself. Avoid using redraw on investment loans unless you're certain you'll never withdraw for personal use.
Will using an offset account affect my tax deductions?
Not if used correctly. For investment properties, the interest deduction is determined by the loan's original purpose (investment), and offset funds sitting separately don't contaminate that. By contrast, withdrawing personal funds via redraw from an investment loan does affect deductibility. The ATO's TR 2000/2 ruling is clear on this.
How much money do I need in my offset account to make it worthwhile?
Enough to beat the annual package fee. At 5.72%, you need roughly $7,000 average balance to offset a $395/year fee. The higher your average balance, the more powerful it gets — $50,000 average saves around $238/month, or $2,860/year in interest. If you're salary-crediting directly to the account, even modest balances compound meaningfully over 30 years.
Can I have multiple offset accounts linked to one loan?
Some lenders allow it — NAB, for example, lets you link multiple offset accounts to a single loan. This is useful if you want to bucket savings (emergency fund, holiday fund, tax reserve) while still offsetting the full total. Check with your lender; not all products support multiple-account offset structures.
What happens to my offset account if I refinance?
The offset account stays with your current lender — it's a product feature of your existing loan, not a portable account. When you refinance, that account closes (or converts to a standard transaction account) and you open a new offset account with the incoming lender. Any balance you held there is returned to you; it's not locked up. Factor this into your refinancing timeline if you use the offset account for bill management.
Compare Home Loans with Offset Accounts
LoanGorilla compares 100+ home loan lenders across Australia. Filter by offset availability, loan type, LVR, and rate type to find the product that actually suits your situation — not just the one with the lowest advertised rate.
Compare offset home loans at loangorilla.com.au →
loangorilla.com.au is an Australian Credit Representative (ACR) of Access Lending Group, Australian Credit Licence 531308. Rates and information are current as of May 2026 and subject to change. This guide is general information only and does not constitute financial advice.
Run the numbers yourself
Don't take any of this on faith — plug your own figures into the relevant Australian home loan calculators:
- Offset Savings Calculator
- Redraw Buffer Calculator
- Extra Repayments Calculator
- Repayments Calculator
- Comparison Rate Calculator
Related home loan options
Compare current rates and lender lists for the home loan types most relevant to this guide:
- Offset Account Home Loans
- Redraw Home Loans
- Variable Rate Home Loans
- Fixed Rate Home Loans
- Split Loan Home Loans
- Investor Home Loans