How does an offset account work?
An offset account is a transaction account linked to your home loan. You can deposit, withdraw and spend money as usual, but every dollar in the account reduces the loan balance your lender charges interest on.
For example, if you owe $500,000 and have $50,000 in your offset account, you’ll only pay interest on $450,000. Your regular home loan repayments stay the same, but more of each repayment goes towards paying off the loan itself, helping you pay off your loan sooner and save on interest.
Money.com.au Senior Mortgage Broker Nick Burgess says many borrowers underestimate how powerful a tool their offset account can be.
“I recently had a middle-aged couple with $200,000 sitting in a regular savings account because they assumed their offset was just another transaction account. No one had explained that every dollar in an offset works dollar-for-dollar to reduce the home loan balance they’re charged interest on.”
How much could an offset account save me?
The potential savings with an offset account will depend primarily on these three factors:
- How much you have in your offset account. The bigger the balance, the more interest you'll save.
- The loan’s interest rate and fees, versus what you might be able to get with a basic loan without offset.
- How much you could earn (after tax) by keeping the money in a high interest savings account instead.
It can get complicated, which is why a mortgage broker can be a useful sounding board if you’re unsure of the benefits. But broadly speaking, if used correctly, the savings can be significant.
Take this simplified example: On a $500,000 home loan at 6% interest, keeping $50,000 in a 100% offset account for a full 30-year loan term could save a borrower around $195,000 and reduce the term by more than five years. This assumes the offset balance, interest rate and repayments remain unchanged.
You can use our offset calculator for a savings estimate based on your situation.
How do I find the best offset home loan?
Compare interest rates from different lenders
Some lenders charge a higher interest rate for home loans with an offset account. For example, a bank may offer an interest rate of 5.95% p.a. for a loan without an offset, but charge 6.15% p.a. for a loan with an offset. Make sure you compare rates from multiple lenders to find the best deal on loans with an offset account.
Check the offset account features
These can differ between lenders. For example, some banks let you link multiple offset accounts to their variable home loan, which helps you separate savings for different goals, like an emergency fund, holiday savings, or bills. Some lenders allow up to 99 offset accounts, while others may offer a debit card for easy access to your funds.
Watch for fees and conditions
Some loans have annual package fees or monthly/ongoing fees that can add up and reduce the benefits of your offset account. If there are fees, these will likely be fixed and apply whether or not you take full advantage of the offset account.
Check if it's full or partial offset
A fully offset account means that 100% of the money in the account is deducted from your home loan balance before interest is calculated, helping you save more on interest. On the other hand, a partially offset account only uses part of your balance to reduce the loan amount for interest calculation, meaning you’ll save less on interest.
Client case study: Repayment certainty without losing out on offset
Nick Burgess, Money.com.au Senior Mortgage Broker
“A client wanted to refinance and fix most of their $670,000 home loan, while retaining an offset account for around $20,000 in savings.
We compared several lenders based on rate and fees and ultimately structured the loan with approximately $645,000 fixed for two years and $25,000 variable with a fee-free offset account attached.
This gave the client greater repayment certainty while allowing their savings and salary to offset most of the variable balance. The application was approved within two business days.”
Nick Burgess, Money.com.au Senior Mortgage Broker
How to make the most of your offset account (3 tips from an expert)
We asked Money.com.au’s expert mortgage broker, Nick Burgess, for his take on the common strategies borrowers with a mortgage offset account may use.
While there are a few ways of setting it up, Nick said in his experience fitting the offset account around existing spending and banking habits is what works best.
Use the offset account as your main money hub
For people who primarily bank from a single account, an offset account could fulfil that role.
If the borrower has one main account with a chunk of money in there and all their salary and bills come in and out of it, that could be the perfect candidate for an offset account.
Combine your offset account with a credit card
With this method, as much of your spending as possible goes on a low-cost credit card, which crucially needs to be paid off in full every month to avoid interest charges. The idea is to keep your offset balance as high as possible for as much of the month (because interest is calculated daily) by using the credit card for spending.
According to Money.com.au consumer research, a third of credit cardholders use this strategy to manage cash flow and to keep more money in their offset accounts.
Use your offset account to save for your next property
Some first-home buyers who eventually plan to purchase a second property (i.e. an investment property) use their offset account to save a deposit for property number two.
The idea is to put the minimum repayments possible into the loan and keep building your future deposit for the next home in the offset. This can give you a nice chunky house deposit to go into your second property.
It’s important to get professional advice from a mortgage broker or financial adviser if you are considering any of these strategies.
Make sure your offset account is linked properly
Research from Money.com.au shows that the majority of mortgage holders (57%) have never checked that their offset account is correctly linked to their home loan.
You might think, why should you need to? If you sign up for a mortgage with an offset account it should automatically be linked to your loan, right?
Well, not necessarily. An investigation by the Australian Securities & Investment Commission (ASIC) in 2026 into the offset practices of eight major banks revealed that in many cases the set up was not done correctly. The investigation found that:
- In more than a half of cases (55%), the offset account was opened but not linked
- In 22% of cases, the offset account requested by the customer hadn’t been opened the
- In 14% of cases, the lender linked the offset accounts but outside of the designated timeframes communicated to customers.
Over $55 million was paid as compensation to customers for offset account failure reported to ASIC during September 2023 and August 2025.
If you have an offset account attached to your home loan, contact your lender to ensure that it’s connected and operating properly.
How much does an offset account cost?
Home loans with an offset account tend to be more expensive than loans that don’t. The extra cost can come as a direct offset fee (e.g. $10 per month), as part of a home loan package fee (these can be up to $400 per year) or a higher interest rate.
Analysis by Money.com.au found that among the 40 lowest-rate home loans for owner occupiers, only 6 (15%) of them offer an offset account.
For example, these two loans are identical apart from the offset account which adds 20 basis points to the interest rate.
Is a mortgage offset account worth it?
An offset account is like any other product with benefits and costs. Whether it's worth it or not will really come down to how much you use it (i.e. how much money you keep in it) and just how much the offset facility costs in fees and potentially a higher interest rate on the loan.
Speaking from personal experience, our offset account is a simple, low-effort way for us to save money. Having bought our first home relatively recently (and thrown in a small reno on top) my wife and I still have a fairly high loan balance and the offset account is a good way for us to take the sting out of the interest costs.
We're not alone either. The average mortgage in Australia is now well in excess of $600,000, and tools like an offset account have become particularly important for borrowers as rates have risen significantly in recent years.
How we maximise our offset savings
Sean Callery, Editor of Money.com.au
With the help of our broker, we split our loan into parts. The smaller portion of our balance sits in a loan with offset. This loan has a slightly higher rate, but it's more or less completely offset by what's in the offset account. The bulk of our balance sits in a basic loan with no offset and a lower rate. This approach works really well for us and gives us a lot of flexibility over how we use our savings."
Sean Callery, Editor of Money.com.au
Pros and cons of using an offset account
Pros
- Can potentially save you a significant amount of money in interest.
- Can mean you pay off your home loan sooner as you're paying off more of the loan principal and less interest.
- Works just like a regular transaction account which most people use already.
- Because you are saving rather than earning interest, it does not impact your taxable income.
Cons
- May mean you have to pay an extra fee on your home loan or a higher rate.
- Unless you have a good amount of money in savings, it’s unlikely to make a big difference.
- If you want a home loan with an offset account, your range of loan options will be reduced (e.g. most fixed-rate loans don’t offer offset).
- If you switch home loans down the track, you may need to do some financial readjusting (e.g. changing direct debits, salary payments).
Options compared
Home loan types
Borrower types
